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Friday, August 28, 2009

Dorothea Lange Mother and a child August 17, 1936Drought refugees from Oklahoma camping by the roadside in Blythe, California. "They hope to work in the cotton fields. There are seven in family. The official at the border inspection service said that on this day, 23 carloads and truckloads of migrant families out of the drought counties of Oklahoma and Arkansas had passed through from Arizona entering California."

Ilargi: Howard Davidowitz, who, if he’s not already, ought to be your favorite financial analyst, and grandfather, says hundreds of thousands of stores across the US have yet to close. Howard should know if anyone does, since retail is his field and has been for decades.

He also predicts that hundreds of banks will fail before the year is over. As I was listening to him, I was thinking that perhaps that's a bit steep, if only simply because the FDIC doesn't have the apparatus in place to deal with numbers like that, and certainly not with the numbers that will emerge from their books.

But then I heard big-time private equity master John Kanas claim that 1000 banks will fail over the next two years, and that does seem to fit Davidowitz’ assertion. Still, it was when I read yesterday's FDIC report, and comments on it, that I started thinking Howard was talking about change that I, so to speak, could believe in. Not only did the FDIC state that their troubled banks list went to 416 ‘clients', that list has little meaning unless they act on it. More significant is, as Huffington Post noted, that over 25% of all 8500 US banks, for a total of more than 2100 of them, are unprofitable today.

They are unprofitable at a time when stock markets are at insanely elevated heights compared to what happens in the real world out there, and must and will come down. At a time, also, when commercial real estate is certain to have a huge plunge ahead of it, and drag many smaller banks down with it. And obviously at a time when nobody doubts any longer that foreclosures in domestic real estate must increase dramatically this year and through at least 2015. The FDIC can't refuse to close banks that legally need to fail indefinitely. That in itself would be, or indeed is, a huge threat to the system. Then again, so is closing them.

Davidowitz sums it up by saying the US doesn't need more than 5000 banks. In other words, 3500 failures. There is no doubt that the Fed's refusal to report which banks have received taxpayer funded bailouts doesn't fit in a democratic system, but there is also no doubt that it would be a risky move. The banking system is a patient on what can perhaps best be labeled extreme life-support. Inviting the press into the ER would be pretty sure to finish off the ailment riddled body.

Not that I think that revealing reality is not inevitable. I have long said that the game is over, that both the banking system and in its wake the political system are dead and being propped up in a chair to fool people into thinking they are alive. The accumulated aggregate debt is simply too high to pay off. It's all just a matter of time. Spending $23.7 trillion, to follow Neil Barofsky's number, in order to do the propping up, is a very high price to pay for a few months more of a society already so deeply indebted across all levels of its organization, and indeed its entire political structure. Moreover, it does nothing to pay off the debt. On the contrary, it makes it that much worse. And, as Davidowitz says: "The banks are still in the crapper."

That said, it should be no surprise that I fully agree with Howard Davidowitz' assessment of the US:

"We are in the tank forever. As a country we are out of control, we're in a death spiral."

The demise of the financial system, as should be obvious, is also the end of politics as we’ve come to know it. It makes no difference whether you would applaud that because of the deeply seated corruption that eats away at the system like a tumor, or regret it because there is no telling what comes after. No matter how we feel about it, we will have to transition into something new. The chances that we will do so quietly are negligible, as history tells us. There's too much power in the hands of those who have too much to lose, and not nearly enough in the hands of those who have nothing left to lose.

And that is the breaking point. People will accept just about anything as long as they feel they will lose out if there are major changes. They won't if they feel they've lost all that has intrinsic value. In a consumer based society, you need to keep the customer satisfied. And the customers won't be satisfied if they can't consume. Closing hundreds of thousands of stores and hundreds of banks, on top of all that has come down already in the past two years, will lead to a situation from which a return to "normalcy" is no longer an option. The camel's back can take only so many straws.

A good example of where we are going is the 38% plunge in income for American farmers. Just try and imagine that for yourself, a 38% pay-cut from one year to the next. What would that mean for your family? Where do you go from there, and how do you do it? Go out and look for work in the cotton fields?

Retail maven Howard Davidowitz paid another visit to Tech Ticker this week. And despite signs of improvement in consumer confidence and retail stocks rising, Davidowitz is steadfast in his belief the consumer is dead. Rather than summarize, let me just highlight some of his best one-liners:

On retail:

"The retail business is terrible... It's almost all negative."

"We're going to close hundreds of thousands of stores."

On the consumer:

"They’re still over leveraged, they're losing jobs, their credit has been cut back."

On America:

"We are in the tank forever. As a country we are out of control, we're in a death spiral."

On the stock market:

"We're in terrible shape. That's what the fundamentals tell me. I can't explain the stock market."

But it's not all gloom and doom, believe it or not. Davidowitz, who runs a retail consulting firm Davidowitz and Associates, thinks certain discount retailers, grocers, drug store chains and a select few department stores can survive and prosper in the future. Most notably he likes the "extreme discounters" like Family Dollar, Dollar Tree (which was up almost 5% Tuesday after the company raised its outlook) and 99 Cents Only Stores. And, in the department store sector, he says, Kohl's will "be the only winner" because of their cost controls. (Davidowitz has no positions in stocks mentioned.)

When retail expert and all-around economy watcher Howard Davidowitz appeared on Tech Ticker in February declaring the worst was yet to come for the U.S. economy and that Americans' standard of living has changed permanently, our comment boards lit up. But surely with the latest rally off the March lows, bearish Davidowitz is more bullish, right? Not a chance. Look at your financial history books.

Two of the biggest rallies of more than 40 percent occurred during the Great Depression, says Davidowitz of Davidowitz & Associates,a retail consulting and investment banking firm. "People were sucked in and ultimately were destroyed," he says. It's a warning to today's investors, who are hoping to extend the rally. Don't get Davidowitz started on the economy or fundamentals. "Barack Obama's numbers have all gone mad," Davidowitz says. The Obama administration recently announced the U.S. budget deficit will be $9 trillion during the next decade; $2 trillion higher than the original forecast.

Since the government gave banks relief on mark-to-market accounting and the "stress tests" helped engineer a big round of capital-raising last spring, the financial sector has been on a tear. Now a major debate is occurring over whether the sector remains attractively valued or is living on borrowed time. On the optimistic side of the ledger, famed hedge fund manager John Paulson is upping his stake in Citigroup, The NY Post reports. Last month, an SEC filing revealed Paulson's fund taking big stakes in Bank of America, Goldman Sachs, JPMorgan, Capital One Financial and other financials.

On the other hand, regulators loosened restrictions on private equity firms' ability to buy failed banks, a nod to the drain on the FDIC's insurance fund given the failures of the past year - and more expected to come. (On Thursday, the FDIC said the number of banks on its problem watchlist rose to 416 in the second quarter from 305 in Q1, while its insurance fund fell 20% to $10.4 billion. "The decrease in the fund was chiefly caused by an $11.6 billion increase in the money the FDIC set aside for anticipated bank failures," Reuters reports.)

Count Howard Davidowitz of Davidowitz & Associates among the skeptics, which shouldn't surprise anyone who's seen his often grim (albeit entertaining) appearances on Tech Ticker. "I think the banks have major problems to come," Davidowitz says. "The banks still have tons of toxic assets. [Plus] the shape of the consumer comes right back to the banks with all this credit card debt, student loans, auto loans [going bad] - all of this goes to the banks." In addition to what he sees as a dire outlook for consumers, commercial real estate "is a catastrophe" and will add to the banks' woes, Davidowitz says.

Although REITs like Vornado and Simon Property Group have been able to get financing, many property owners are unable to renegotiate terms with their lenders to account for the new economic realities. As a result, many are under water and Davidowitz expects more commercial real estate owners to just walk away from properties, just as residential homeowners have done.

"Jingle mail" is already happening in the commercial real estate sector, with developers like New York's Harry Macklowe and California's Hines and Sterling already having returned properties to their lenders. Davidowitz expect more of this, which means more losses for the banks, who've already been the beneficiaries of unprecedented government bailouts. "Did [regulators] do something for the banks? No question about it," Davidowitz says. "My question: when you spend $13 trillion, what did we get? Banks are still in the crapper. I have a problem with that."

Up to 1,000 banks could fail in the next two years, private equity chief John Kanas told CNBC in a recent appearance. Kanas' high-powered private equity conglomerate -- which included the buyout titans like the Carlye Group, the Blackstone Group and W.L. Ross -- bought Florida's failed BankUnited in May.According to Kanas, the second wave of failed institutions will include hundreds of smaller banks. "Many of these [failed] institutions no body has ever heard of," Kanas said. "It augurs poorly for smaller business mangers," he added. "Very small banks tend to lend money to small businesses -- this exacerbates the problem for small companies." More from Kanas:

"Government money has propped up the very large institutions as a result of the stimulus package," he said. "There's really very little lifeline available for the small institutions that are suffering."

More than one in four U.S. banks are unprofitable, a number fueled by rising numbers of bad loans, the FDIC announced Thursday.

The percent of banks losing money has quadrupled since 2005. The U.S. added 111 banks to its "Problem List" for a total of 416, a 15-year high (the FDIC doesn't publicly identify those banks). And the rate of loans that are at least 90 days late or are so late they're no longer accruing interest is the highest recorded in U.S. history.

A look inside the FDIC's numbers also sheds light on how U.S. consumers are managing the recession. The health of banks is not just a Wall Street problem, or one for federal bank regulators in Washington, D.C.

It's not a pretty picture. The amount of loans banks are charging off is rising (when banks charge off a loan it means they don't expect the borrower to repay). There have been more charge-offs on multifamily home loans (apartment buildings) so far this year than all of 2008. [See Figure 1 below] Looking at the past two quarters, overall charge-offs have increased 28 percent; on home loans they've increased 25 percent; and credit card charge-offs are up 21 percent.

The financial armageddon many feared last fall never materialized, but these numbers show that the expected losses continue to rack up, especially among homeowners. [See Figure 2 below]

As the Huffington Post reported earlier this year in our series, Dispatches from the Displaced, homeowners are struggling. Home mortgages at least 90 days delinquent have quadrupled to about $65 billion since the same period last year. [See Figure 3 below]

But it's not just homeowners. All borrowers are hurting. Loans late at least 90 days have doubled since September 2008. [See Figure 2 below]

As for the type of banks taking these losses, it's the big banks that are suffering the most. Nearly half of banks with more than $10 billion in assets are unprofitable through the first six months of the year (41%); for smaller banks, it's just 26 percent (banks with less than $100 million in assets). Then again, the biggest banks have received the biggest government bailouts.

The problem bank list is just about the only part of the industry that's growing right now. The sector's financial problems, outlined by regulators in excruciating detail on Thursday, could speed a shakeout that already has slashed banks' ranks by almost half over two decades. "We could end up with a couple thousand fewer banks within a few years," said Terry Moore, managing director of consulting firm Accenture's North American banking practice. "You could say we're overbanked right now."

The Federal Deposit Insurance Corp. said Thursday that U.S. banks lost $3.7 billion in the second quarter. Bad loans are growing faster than institutions are setting aside in reserves for future losses, while total lending has declined for four straight quarters. The list of troubled institutions -- those deemed to pose at least a "distinct possibility" of failure -- rose by more than a third during the second quarter, to 416. The FDIC doesn't reveal the names of banks on the problem list.

Anticipating rising costs of dealing with troubled banks, the FDIC on Wednesday formalized new rules for private equity firms and other investors buying failed banks. There has been a heavy trade in failed banks lately, given that 81 institutions have been closed in 2009 and dozens more are expected to be shut over the next year. The quick pace of failures has already rewarded some prescient bankers. "We were preparing for this moment for maybe two and a half years," said Norman C. Skalicky, CEO of Stearns Bank, a closely held St. Cloud, Minn., institution that has acquired four banks from the FDIC this year. "The biggest mistake we made was not getting ready a year earlier."

Bank failures aren't the only driver of consolidation. While bank mergers fell to 89 in the first half of 2009 from their recent peak of 153 in the first half of 2007, growth-minded banks such as First Niagara in Lockport, N.Y., are looking for opportunities to expand. "We are always working with our eyes wide open," said John Koelmel, CEO of First Niagara, which last month announced the acquisition of Harleysville National of Philadelphia. "Our shopping cart isn't full." The shopping spree ahead -- Moore says the U.S. could lose 2,000 banks by the end of 2012 -- is likely to claim some well known regional banks.

Colonial BancGroup of Alabama and Guaranty Financial Group of Texas have failed over the past month. Chicago condominium lender Corus Bankshares has been on death watch for some time. Judging by stock prices, investors are still questioning the prospects of KeyCorp of Cleveland, Marshall & Ilsley of Milwaukee and Regions Financial of Alabama. But the bulk of consolidation is likely to come at the expense of smaller banks, whose numbers have been dwindling for decades in the face of deregulation and technological advances that disproportionately aided bigger competitors.

The number of banks with less than $100 million in assets has dropped by more than 5,000 since 1992, according to a study released this year by banking consultancy Celent. Even more pronounced has been the small banks' loss of deposits. Small banks' share of the U.S. deposit market plunged to 2% last year from almost 13% in 1992, according to Celent data. "The world is only getting more complex," Celent analyst Bart Narter wrote, noting ever-increasing regulatory paperwork and new businesses such as Internet banking. "Small banks are overwhelmed."

That said, small banks aren't going away. Policymakers such as FDIC chief Sheila Bair have emphasized their importance in lending to small businesses, and studies have found they tend to pay better deposit rates than bigger rivals. The FDIC on Wednesday extended a program that some community bankers credit with helping them to compete with the biggest banks. And the smallest banks have generally performed better during the financial crisis than their bigger rivals. Banks with less than $100 million in assets make up more than a third of the FDIC's problem bank list, but have accounted for just 11 of 81 bank failures so far this year.

Like their bigger rivals, community banks are now enjoying stronger profit margins in the second quarter, as the spread between the rates banks pay depositors and those they charge to lend to borrowers widened. "This is good news for community banks, since three-fourths of their revenues come from net interest income," Bair said Thursday.

When the credit crisis struck last year, federal regulators pumped tens of billions of dollars into the nation's leading financial institutions because the banks were so big that officials feared their failure would ruin the entire financial system. Today, the biggest of those banks are even bigger. The crisis may be turning out very well for many of the behemoths that dominate U.S. finance. A series of federally arranged mergers safely landed troubled banks on the decks of more stable firms. And it allowed the survivors to emerge from the turmoil with strengthened market positions, giving them even greater control over consumer lending and more potential to profit.

J.P. Morgan Chase, an amalgam of some of Wall Street's most storied institutions, now holds more than $1 of every $10 on deposit in this country. So does Bank of America, scarred by its acquisition of Merrill Lynch and partly government-owned as a result of the crisis, as does Wells Fargo, the biggest West Coast bank. Those three banks, plus government-rescued and -owned Citigroup, now issue one of every two mortgages and about two of every three credit cards, federal data show.

A year after the near-collapse of the financial system last September, the federal response has redefined how Americans get mortgages, student loans and other kinds of credit and has made a national spectacle of executive pay. But no consequence of the crisis alarms top regulators more than having banks that were already too big to fail grow even larger and more interconnected. "It is at the top of the list of things that need to be fixed," said Sheila C. Bair, chairman of the Federal Deposit Insurance Corp. "It fed the crisis, and it has gotten worse because of the crisis."

Regulators' concerns are twofold: that consumers will wind up with fewer choices for services and that big banks will assume they always have the government's backing if things go wrong. That presumed guarantee means large companies could return to the risky behavior that led to the crisis if they figure federal officials will clean up their mess. This problem, known as "moral hazard," is partly why government officials are keeping a tight rein on bailed-out banks -- monitoring executive pay, reviewing sales of major divisions -- and it is driving the Obama administration's efforts to create a new regulatory system to prevent another crisis.

That plan would impose higher capital standards on large institutions and empower the government to take over a wide range of troubled financial firms to wind down their businesses in an orderly way. "The dominant public policy imperative motivating reform is to address the moral hazard risk created by what we did, what we had to do in the crisis to save the economy," Treasury Secretary Timothy F. Geithner said in an interview.

The worry for consumers is that the bailouts skewed the financial industry in favor of the big and powerful. Fresh data from the FDIC show that big banks have the ability to borrow more cheaply than their peers because creditors assume these large companies are not at risk of failing. That imbalance could eventually squeeze out smaller competitors. Already, consumers are seeing fewer choices and higher prices for financial services, some senior government officials warn.

Those mergers were largely the government's making. Regulators pushed failing mortgage lenders and Wall Street firms into the arms of even bigger banks and handed out billions of dollars to ensure that the deals would go through. They say they reluctantly arranged the marriages. Their aim was to dull the shock caused by collapses and prevent confidence in the U.S. financial system from crumbling.Officials waived long-standing regulations to make the deals work. J.P. Morgan Chase, Bank of America and Wells Fargo were each allowed to hold more than 10 percent of the nation's deposits despite a rule barring such a practice.

In several metropolitan regions, these banks were permitted to take market share beyond what the Department of Justice's antitrust guidelines typically allow, Federal Reserve documents show. "There's been a significant consolidation among the big banks, and it's kind of hollowing out the banking system," said Mark Zandi, chief economist of Moody's Economy.com. "You'll be left with very large institutions and small ones that fill in the cracks. But it'll be difficult for the mid-tier institutions to thrive." "The oligopoly has tightened," he added.

Federal officials and advocacy groups are just beginning to study the impact of the crisis on consumers, but there is some evidence that the mergers are creating new challenges for ordinary Americans. In the last quarter, the top four banks raised fees related to deposits by an average of 8 percent, according to research from the Federal Reserve Bank of Dallas. Striving to stay competitive, smaller banks lowered their fees by an average of 12 percent.

"None of us are saying dismember these institutions. But you do want to create a system that allows for others to grow, where no one has an oligopolistic power at the expense of others who might be able to provide financial services to consumers," said Richard Fisher, president of the Federal Reserve Bank of Dallas. Normally, when faced with price increases, consumers simply switch. But industry officials said that is not so easy when it comes to financial services.

In Santa Cruz, Calif., Wells Fargo, Bank of America and J.P. Morgan Chase hold three-quarters of the deposit market. Each firm was given tens of billions of dollars in bailout funds to help it swallow other banks.The rest of the market, which consists of a handful of tiny community banks, cannot match the marketing power of the bigger banks. Instead, presidents of the smaller companies said, they must offer more personalized service and adapt to technological changes more quickly to entice customers. Some acknowledged it can be a tough fight.

Wells Fargo is "really, really good at the way they cross-sell and get their tentacles around you," said Richard Hofstetter, president of Lighthouse Bank, whose only branch is in Santa Cruz. "Their customers have multiple areas of their financial life involved with Wells Fargo. If you have a checking account and an ATM and a credit card and a home-equity line and automatic bill payments . . . to change that is a major undertaking."

Last October, when the Fed was arranging the merger between Wells Fargo and Wachovia, it identified six other metropolitan regions in which the combined company would either exceed the Justice Department's antitrust guidelines or hold more than a third of an area's deposits. But the central bank thought local competition in each of those places was sufficient to allow the merger to go through, documents show.

Camden Fine, president of the Independent Community Bankers of America, said those comments reveal the government's preferential treatment of big banks. He doubted whether the Fed would approve the merger of community banks if the combined company ended up controlling more a third of the market. "To favor one class of financial institutions over another class skews the market. You don't have a free market; you have a government-favored market," he said. "We will never have free markets again if you have the government picking winners and losers."

Before the crisis, many creditors thought that the big institutions were a relatively safe investment because they were diversified and thus unlikely to fail. If one line of business struggled, each bank had other ventures to keep the franchise afloat. And even if the entire house caught fire, wouldn't the government step in to cover the losses? With executives comforted by that thinking, risk came unhinged from investment decisions. Wall Street borrowed to make money without having enough in reserves to cover potential losses. The pursuit of profit was put ahead of the regard for safety and soundness. The federal bailouts only reinforced the thought that government would save big banks, no matter how horrible their decisions.

Today, even with the memory of the crisis fresh in their minds, creditors are granting big institutions more favorable treatment because they know the government is backing them, FDIC officials said. Large banks with more than $100 billion in assets are borrowing at interest rates 0.34 percentage points lower than the rest of the industry. Back in 2007, that advantage was only 0.08 percentage points, according to the FDIC. Such differences can cause huge variance in borrowing costs given the massive amount of money that flows through banks.

Many of the largest banks reported a surge in profit during the most recent quarter, including J.P. Morgan Chase and Goldman Sachs. They are prospering while many regional and community banks are struggling. Nearly three dozen of the smaller institutions have failed since July 1, including Community Bank of Nevada and Alabama-based Colonial Bank just last week. If the government continues to back big firms over small, regulators worry that reckless behavior could return to Wall Street.

The administration's regulatory reform plan takes aim at this problem by penalizing banks for being big. It would require large institutions to hold more capital and pay higher regulatory fees, as well as allow the government to liquidate them in an orderly way if they begin to fail. The plan also seeks to bolster nontraditional channels of finance to create competition for large banks. If Congress approves the proposal, Geithner said, it would be clear at launch which financial companies would face these measures. Economists and officials debate whether these steps would address the too-big-to-fail problem. Some say, for instance, that determining the precise amount of capital big financial companies should hold in their reserves will be difficult.

Geithner acknowledged that difficulty but said the administration would probably lean toward being more strict. Taken together, the combination of reforms would be a powerful counterbalance to big banks, he said. "Our system is not going to be significantly more concentrated than it is today," Geithner said. "And it's important to remember that even now, our system remains much less concentrated and will continue to provide more choice for consumers and businesses than any other major economy in the world."

The American farm, which has weathered the global recession better than most U.S. industries, is starting to succumb to the downturn. The Agriculture Department forecast Thursday that U.S. farm profits will fall 38% this year, indicating that the slump is taking hold in rural America. Much of the sector had escaped the harsher aspects of the crisis, such as the big drop in property values plaguing city dwellers and suburbanites. "It is safe to say that the global recession has finally shown up on the doorstep of the agriculture economy," said Michael Swanson, an agricultural economist at banking giant Wells Fargo & Co.

The Agriculture Department said it expects net farm income -- a widely followed measure of profitability -- to drop to $54 billion in 2009, down $33.2 billion from last year's estimated net farm income of $87.2 billion, which was nearly a record high. The drop in farm prices is likely to lead to a slower increase in food costs for American consumers, economists say. The slump isn't affecting all farmers equally: Many are still reaping big profits while others are having a hard year. Farmers are accustomed to seeing their incomes swing widely, due to the vagaries of such things as Mother Nature and the oil market's impact on the price of corn-derived ethanol fuel.

For instance, sugar farmers are seeing the highest global prices in 28 years, in part because of harvest problems in India. But many dairy and hog farmers are barely holding on because of low prices and shrinking foreign demand.The sector's expected profit decline is unusually steep, coming after two boom years. According to USDA calculations, its 2009 forecast is $9 billion below the 10-year average for farm profits. Jay Roebuck, a 52-year-old dairy farmer in Turner, Maine, said he is falling behind on bill payments even though he has laid off two workers and reduced the rations of his cows. "This is by far the worst it's ever been," said Mr. Roebuck, who estimates he is losing $9,000 monthly.

For most Americans, the chill in the farm belt is related to one of the few positives they see in this economy: slowing inflation. Prices farmers are receiving for corn, wheat and hogs are down sharply from last year. Partly as a result, economists expect the Consumer Price Index for food to rise 3% this year, compared with 5.5% in 2008, which was the fastest annual rise in 18 years.

Less than 1% of Americans are engaged directly in agriculture. Yet farmers have a big impact on the economy. They are big spenders, produce commodities that are ubiquitous in the economy, and use about half of the nation's land. According to past calculations by the USDA, agriculture and food account for about 13% of U.S. gross domestic product. The profit drop signals that the decades-long contraction in the number of farmers who produce commodities such as hogs and milk is likely to accelerate this year.

Growers will probably cut back even more on their spending plans, making it harder for companies that sell such things as tractors, seeds and fertilizer to raise prices to farmers. "There is likely to be more pressure on pricing," said Ann Duignan, an analyst at J.P. Morgan who follows farm-implement makers. She said Thursday that manufacturers will probably have the hardest time passing along higher costs to livestock operators, who are having the most financial difficulty.

The profit drop is a wrenching change for farmers, many of whom enjoyed the most profitable years of their careers in 2007 and 2008, when crop prices hit stratospheric levels. Fueled by rising federal mandates, the ethanol industry's appetite for corn exploded. At the same time, the growing middle class in emerging nations such as China was increasing its spending on U.S. farm goods like soybeans and pork. Many farmers were able to reduce debts and increase savings, helping to insulate them from the recession in 2008.

Part of what had held the recession at bay in farm country earlier this year was that the prices of corn and soybeans, while down from last year's levels, were still roughly twice as high as what had been normal early this decade and in the 1990s. But prices of these commodities have steadily retreated in recent weeks amid forecasts for bumper harvests this fall. U.S. corn farmers are projected to harvest about 12.8 billion bushels this fall, which would be the second-highest crop ever. Soybean farmers are expected to harvest a record 3.2 billion bushes. The price of corn and wheat is 41% lower than last year, while prices of hogs and nonfat dry milk are down one-third from 12 months ago.

Gene Gourley, who raises 60,000 hogs every year on his farm in Webster City, Iowa, is losing as much as $30 on each hog he sells. He said Thursday that he is rethinking plans to buy a trailer for hauling feed to his livestock. "With hogs losing so much money, you're basically burning up anything you could have saved," said Mr. Gourley. "You just don't have the equity to go buy new upgrades." Before the recession, hog farmers enjoyed several years of good business in part because exports were booming to countries such as China. When the recession took hold, restaurants cut orders for pork and foreign demand cooled. Pork exports in June were 36% lower than June 2008, according to USDA figures. The decline in commodity prices also has begun to depress the value of U.S. farmland for the first time in two decades.

The Federal Reserve Bank of Chicago said in a report it issued Thursday that the price of good quality farmland in Iowa and Michigan was 5% lower on July 1 than it was on the same 2008 date. Falling land prices are making it harder for farmers to borrow because land is their biggest source of collateral. "No question that specific industries are burning through working capital very quickly," said Bill York, chief executive of AgriBank FCB, St. Paul, Minn. "Pork and dairy are of particular concern."

Farmers, many of whom already receive federal subsidies, are seeking more help. Last month, the Obama administration said it will put an additional $243 million into the pockets of dairy farmers by temporarily raising the price the government pays for products such as cheese under its long-running dairy-price support program. Midwest governors are asking Washington to buy more pork for government nutrition programs in hopes that would raise hog prices. The requests are likely to agitate critics of agricultural aid, who argue, among other things, that the average farmer is much wealthier than the typical U.S. household, and that U.S. subsidies put farmers in poor nations at a competitive disadvantage.

U.S. personal incomes were unchanged in July as the impact of federal stimulus payments waned and wages rose for the first time in a year, the Commerce Department reported Friday.Consumer spending increased 0.2% last month, led by higher outlays for autos. Spending rose for the third month in a row. On the surface, the July report was slightly weaker than expected, but with upward revisions to figures for May and June, income and spending levels were higher than forecast. Morgan Stanley economists raised their third-quarter forecast for gross domestic product growth to 4.8% from 4.3%.

Economists had been looking for July incomes to rise by 0.2% in July, with spending pegged to increase 0.3% in a MarketWatch survey. Inflation was tame during the month. Consumer prices were flat.Excluding food and energy, consumer prices rose 0.1% on the month. In the past year, consumer prices are down 0.8%, while core prices are up 1.4%, the lowest inflation rate of this business cycle. With spending rising faster than incomes, the personal savings rate fell to 4.2%, down from 4.5% in June.

The savings rate has now retraced back to January's rate after surging in April and May. "The 'stimulus' payments to households were largely saved and had minimal impact on consumer spending," said Stephen Stanley, chief economist for RBS Securities. The government's report paints a picture of consumers slowly climbing out of the worst recession in generations. Real disposable incomes are up 0.7% since bottoming in March, but are down 3.5% from the peak in May 2008, when taxes were cut. Real consumer spending has risen 0.3% from the bottom in April, but is down 1.6% since the recession began in December 2007.

Incomes and spending were revised higher in May and June. Incomes dropped 1.1% in June, not the 1.3% originally reported. Real spending rose 0.1% in June, rather than falling 0.1% as initially reported. Incomes from private-sector wages and salaries increased 0.1% in July, the first such rise since August 2008. Private-sector wage and salary incomes are down 7% in the past 12 months -- the worst year-over-year decline on record, dating back to 1948. Incomes from small businesses rose 0.6% in July. Income from financial assets fell 1%. Income from transfer payments fell 0.2%.

Real spending on durable goods rose 1.8% in July, with autos accounting for all the increase. Real spending on nondurable goods fell 0.3% and spending on services rose 0.1%. The federal government's cash-for-clunkers program, which gave buyers up to $4,500 toward a new car, boosted spending on durable goods, and pushed consumer prices lower. The government didn't quantify the impact of the clunkers program on the July data. The program was running in the last week of July and was extended through most of August.

New home sales are ticking up again, bringing some much-needed relief to the beleagured homebuilders. But watch out. Mark Hanson produced this chart, showing foreclosure starts against new home sales. As you can see, the new foreclosure starts jumped even more in july than new home sales, meaning trouble down the road for homebuilders -- especially once that $8,000 first-time homebuilder tax credit runs out.

For a world first, the announcement came with remarkably little fanfare. But last month, the Swedish Riksbank entered uncharted territory when it became the world’s first central bank to introduce negative interest rates on bank deposits. Even at the deepest point of Japan’s financial crisis, the country’s central bank shied away from such a measure, which is designed to encourage commercial banks to boost lending. But, as they contemplate their exit strategies after the extraordinary measures of the past two years, central bankers will be monitoring the Swedish experiment closely.Mervyn King, the Bank of England governor, has hinted he may follow the Swedish example as the danger of a so-called liquidity trap, where cash remains stuck in the banking system and does not filter out to the wider economy, is an increasing concern for the UK. Hoarding is exactly what happened in Japan earlier this decade when the Bank of Japan implemented quantitative easing between 2001 and 2006. Japanese banks refused to lend, in spite of central bank stimulus, because of fears over the dire state of the economy.

If this continues to happen in other economies, central bankers may be left with little choice but to follow the Swedish example. John Wraith, head of sterling rates product development at RBC Capital Markets, says: “The success of the UK’s quantitative easing experiment hinges a lot on whether the banks will use the extra money they are getting for lending to individuals and businesses. “If there is no sign of this over the next few months, then the Bank of England might consider a negative interest rate. In essence, it is a fine on banks that refuse to lend.”

In the UK, for example, nearly £140bn has been injected into the economy through central bank purchases of government bonds and corporate assets, mainly from the commercial banks. However, since the QE project was launched on March 5, a lot of this money, which in theory should be used by the commercial banks for lending to businesses and individuals, has ended up at the Bank of England in reserves. Commercial bank deposits have risen from £31bn in early March to £152bn at the end of July – the latest figure. This in itself is not a problem as the banks could be using this big increase in their reserves to step up their lending to the private sector. The more the banks have in reserves, the more they are allowed to lend.

However, there is no sign yet that they are using their much bigger reserves to lend on. The latest money supply figures for lending are still fairly anaemic. It is why Mr King did not rule the possibility of negative interest rates when asked about the Riksbank model this month following the unveiling of the quarterly inflation report. “It’s an idea we will certainly be looking at, whether the effectiveness of our asset purchases could be increased by reducing the rate at which we remunerate reserves,” he said. His comments are one reason why yields on short-dated UK government bonds have fallen to record lows and why sterling has been under pressure in the currency markets.

Initially, Mr King gave QE six months before it would start taking effect. That time limit is up next week. If there are no signs in the money supply numbers, particularly in the key M4 lending excluding financial institutions, then the policy may start to look a distinct possibility. In Europe, the European Central Bank is considered less likely to introduce negative interest rates. This is because it has maintained higher official rates than other banks and used money market operations to act as a stimulant instead. For example, it offered commercial banks unlimited funds for one year at the end of June. But it does have the same problem as the Bank of England in assessing the success of its policy. Like the UK, commercial bank deposits at the ECB have shot up in the past few months.

At this stage, the US also seems unlikely to introduce the policy as there has been little debate on the matter and no hints from policymakers about it being an option. At the Riksbank, which now has a deposit rate of minus 0.25 per cent, the most vocal advocate of the policy is deputy governor Lars Svensson, a world-renowned expert on monetary policy theory and a close associate of Ben Bernanke, chairman of the US Federal Reserve, since they worked together at Princeton University. According to the minutes of the Riksbank’s July meeting, Mr Svensson dismissed the “zero interest rate mystique” that had “exaggerated the problems” associated with zero or sub-zero rates. “There is nothing strange about negative interest rates,” he said.

Henrik Mitelman, chief fixed income strategist at SEB, the Swedish bank, said that the negative deposit rate, combined with a cut in the repo rate to an historic low of 0.25 per cent, sent a powerful signal to the market that the Riksbank intended to keep rates close to zero until economic recovery was well under way. “What the Riksbank did was very brave. They decided to see if markets could cope with it and the markets have.” Carl Milton, fixed income analyst at Danske Bank in Stockholm, cautions that the Riksbank decision was not as pioneering as some have portrayed. The Bank routinely keeps its deposit rate 50 basis points lower than the repo rate to regulate liquidity in the market, he says. When the repo rate was cut to 0.25 per cent, the deposit rate was automatically forced into negative territory. “It was not something put in place to punish banks or to force them to lend,” he says.

Moreover, Swedish banks make relatively little use of the central bank deposit facility, limiting the impact of negative rates. But by breaking the taboo surrounding sub-zero rates, the Riksbank may have set an important precedent that others could use to greater effect. Don Smith, economist at Icap, says: “Sweden’s policy is certainly very interesting. We will have to wait and see what happens there. This is certainly a very unusual policy, but these are very unusual times.”Banks pay price for policy

Sweden’s decision to introduce negative interest rates on deposits at the Riksbank means that commercial banks have to pay for the privilege of saving their money at the central bank.. The new rate of minus 0.25 per cent forces banks to pay 0.25 per cent to the Riksbank. Normally, banks would be paid interest on these deposits. It is thought to be the first time that negative rates have been introduced. Central banks usually shy away from such a drastic policy because it is in effect a tax or fine on the commercial banks and could hurt their balance sheets.

However, the Riksbank hopes that by charging banks for saving their money, rather than paying them, it will encourage them to increase their lending to individuals and businesses, boosting the economy. It also hopes that it might encourage them to divert the money into other assets, such as government bonds or even highly rated corporate bonds. This would bring down bond yields and act as an stimulant. In the UK, there have been signs that banks are switching cash into short- dated government bonds following hints from Mervyn King, Bank of England governor, that the policy could be introduced there.

Japanese core consumer prices fell a record 2.2 percent in July from a year earlier, with weak demand playing a growing role in pushing the world's No. 2 economy deeper into deflation. And Japan's jobless rate rose to a record high 5.7 percent in July While last year's spike in energy costs continued to weigh on on-year comparisons in prices, an index stripping out both energy and food prices showed deflationary pressure was broadening.

The core-core inflation index, similar to the core index used in other developed countries, fell 0.9 percent in July from the same month a year ago after declining 0.7 percent in June. The drop in the core consumer price index, which excludes volatile fresh fruit, vegetable and seafood prices but includes those of oil products, matched a market forecast and was bigger than a 1.7 percent drop in June.

It was the third straight month of record falls in the index, and the biggest drop under calculation methods dating back to 1970. July also marked the fifth straight month of annual falls, the Ministry of Internal Affairs and Communications data showed on Friday. Core consumer prices in Tokyo, available a month before the nationwide data, fell a record 1.9 percent in August from a year earlier, more than a market forecast of a 1.8 percent decline.

Japan's economy returned to growth in the second quarter, pulling out of its longest recession since World War Two, but analysts warn of a rocky road ahead as the nascent recovery was based on short-term stimulus efforts around the world. Job availability in Japan sank to a record low, reinforcing views that it will take time for the job market to recover despite a pick-up in corporate activity. The seasonally adjusted unemployment rate rose to 5.7 percent from 5.4 percent in June and was above a median market forecast of 5.5 percent.

The jobs-to-applicants ratio slid to 0.42 from 0.43 the month before, meaning only about four jobs were available for every 10 applicants. It was the lowest reading since the data began in 1963 and fell short of a median market forecast of 0.43. The number of new job offers fell 23.4 percent in July from the same month last year but was flat from June, when new job offers rose on month for the first time in six months.

Consumer confidence is on the rise and home prices have rebounded slightly, but things are still pretty miserable for millions of Americans, according to the latest update of Huffington Post's Real Misery Index.The index for July 2009 was 29.2, a slight decrease from June's 29.9, the highest number in the 25 years analyzed by the Huffington Post. Compared to June, the rate of inflation declined slightly, with smaller year-over-year increases in prices for food and medical care. But that good news was offset by other factors such as a rise in food stamp recipients and continuing home equity delinquencies.

To formulate our index, which provides a better snapshot of the economy than the often-criticized misery index (inflation added to unemployment), we used a more accurate unemployment statistic (the U6 formulation), with the inflation rate for three essentials (food and beverages, gas, medical costs), and year-over-year percent changes in credit card delinquencies, housing prices, food stamp participation, and home equity loan deficiencies. We gave equal weight to the broad unemployment numbers and the combination of the other seven metrics (with housing prices having an inverse relationship to the index). Thus, we added the broad unemployment U6 statistic (note: the current U6 was first introduced in 1994 so we used a similar number - the U7 - for the years 1985-1993) to the average of the seven other statistics.

For the current update, we've included the index for every year going back to 1985, the last year for which all the statistics were available, in a chart and graph. At this stage in the recession, almost everyone is wondering if the economy has really hit bottom and whether the recovery has truly begun. Last week in a speech to other central bankers, Fed chair Ben Bernanke said "The economic recovery is likely to be relatively slow at first, with unemployment declining only gradually from high levels." And indeed, most indicators paint a bleak picture: Highest percent of foreclosures in three decades, slower-than-anticipated growth in GDP and the looming double-digit unemployment numbers.

One point of confusion is the recent rise in the Dow, despite the lingering economic malaise. Part of that is due to economic indicators meaning different things on Wall Street and Main Street. For example, rising unemployment may mean layoffs at companies that improve their bottom line. "Our markets can be ahead of the pace of the recovery," says Art Hogan, director of Global Equity Product at Jefferies & Co. investment bank. "You get a lot of head-scratching from commentators that the market keeps going up but news doesn't correspond to it. It's an order of magnitude. People are looking across the valley and seeing that things could get better." But for most Americans, the outlook remains gloomy and a vicious cycle continues - as more lose their jobs, more fail to keep up with mortgage payments and some fall into poverty, forced to take public assistance.

AIG's stock closed at $47.84 on Thursday. At the start of the month, shares were trading at a mere $13.14. What's going on here?

AIG's stock has nearly quadrupled in August, but the company is no closer to paying back the $80 billion it owes taxpayers. Investors got all wound up after the company announced in the past few weeks that it had appointed a new CEO and returned to profitability. Shares gained another 27% Thursday after The Wall Street Journal reported that new Chief Executive Robert Benmosche's $10.5 million pay package has been fast-tracked for approval by Obama administration "pay czar" Kenneth Feinberg.

AIG pressed for a quick decision on Benmosche's compensation, over concerns he might leave the company if it wasn't immediately approved, according to the report. The news actually came as little surprise, since AIG had previously announced that Feinberg gave the pay package a preliminary nod of approval. A spokeswoman for AIG said the company would not comment on the status of Benmosche's pay package or on the stock price.

Investors' excitement about AIG began to build on Aug. 3, when the company announced it would replace retiring Chief Executive Ed Liddy with Benmosche, the former MetLife CEO. Shares gained a modest 3.5%. The stock skyrocketed on Aug. 5, with shares soaring 63% on hints that the company would post its first quarterly profit since October 2007. On Aug. 7, when AIG announced it earned $1.8 billion in the second quarter, shares gained another 20.5%.

On Aug. 20, Benmosche said that he was optimistic the company would be able to pay back the more than $80 billion it owes the U.S. taxpayers and return to the company's former glory. Shares rocketed 21% higher that day. "People really like this guy Robert Benmosche, because he's really a salt-of-the-earth New York financial guy," said Damon Vickers, managing director of Nine Points Management & Research fund, which has bought up AIG's stock in recent days. "He looks like he's got the spirit to take on this situation and make the best of it."

Since the beginning of the month, shares of AIG (AIG, Fortune 500) are up 264%. The company held a 20-1 reverse stock split on June 30, when shares closed at $1.16. Vickers said AIG's stock has a chance to hit $60 in the near term and $100 in the coming months. He noted that after the stock split, AIG's all-time high stands at $1,400, so the stock has plenty of room to grow.

Since the government holds its 79.9% interest in AIG in preferred shares, taxpayers don't stand to gain from a steep rise in the company's common stock price. Instead, the preferred shares pay a dividend. But the dividends on the TARP part of the bailout -- $41.6 billion, or about half of its overall loan -- are "noncumulative." That means that the company can skip dividend payments without the obligation to make up the difference later.

And that's just what AIG did on Aug. 3, failing to declare its dividend payment to Treasury. Should AIG miss three more dividends, the government will have the right to nominate two more directors to the insurer's board. Despite Benmosche and investors' enthusiasm, AIG is still a very troubled company with a sizeable debt to repay to the government. The insurer has said it did not make enough profit to repay the taxpayers, and AIG said it won't likely be able to sustain a string of profitable quarters anyway, as it will take hefty restructuring charges for its looming core asset sales.

AIG plans on paying back the government by selling off pieces of the company. But those asset sales have been slow-going and sold at depressed values thus far, as credit remains tight. AIG has made just over $9 billion on those deals to date. As a result, AIG has agreed to spin off three huge chunks of its business, selling stakes in two of them to the Federal Reserve to reduce its loan by $25 billion. Before his retirement on Aug. 10, Liddy reiterated that the company would likely be able to repay the government in full in three to five years, which Benmosche echoed last week.

The company also has to deal with the ongoing distraction of hundreds of millions of dollars in bonuses that have still yet to be paid to employees of its troubled Financial Products unit. The company became the subject of a public uproar after the revelation in March that AIG paid $165 million in bonuses to employees of the division that nearly brought the company to its collapse. Still, traders like Vickers are undeterred. "As risky as AIG seems, it has the full backing of the U.S. government," he said. "Apparently you can take that to the bank. I'm comparing AIG to a U.S. Treasury, and I know it's insane, but it's nonetheless true."

The U.S. Treasury said in a draft of a presentation that its $40 billion investment in the American International Group Inc. bailout was “highly speculative.” A slide with the phrase was included in documents obtained in a Freedom of Information Act request by Judicial Watch, a group that advocates government transparency. The sentence was omitted from another version of the slide in a presentation describing the November revision to AIG’s rescue in which the insurer got $40 billion from the Treasury. “The prospects of recovery of capital and a return on the equity investment to the taxpayer are highly speculative,” according to the first of the two Treasury slides.

Treasury Secretary Timothy Geithner told Congress in March that New York-based AIG, once the world’s largest insurer, was saved last year to prevent “catastrophic damage” to economic markets. The company still owes the Federal Reserve about $39 billion on a credit line after announcing more than $9 billion in asset sales. “Why do you take out the fact that we are taking on risks for the taxpayers that are both huge and highly uncertain?” said William Black, associate professor of economics and law at the University of Missouri-Kansas City and a former U.S. bank regulator. “The last thing you want to spread is a culture in which people aren’t being absolutely blunt.”

Andrew Williams, a spokesman for Treasury, said the document with the “highly speculative” phrase was a draft created by the previous administration. It isn’t clear who at Treasury created the slides, entitled “Investment Considerations,” and who the intended audience was. “We are confident that Treasury’s investment in AIG has helped strengthen the institution for the greater stability of the American economy and appreciate Chief Executive Officer Robert Benmosche’s commitment to the objective of repaying us in full,” Williams said, declining to comment further.

AIG stock surged this month after the insurer on Aug. 7 posted its first quarterly profit since 2007 and Benmosche, who replaced Edward Liddy as CEO, said Aug. 20 he expects to repay the U.S. The shares closed yesterday at $47.84 on the New York Stock Exchange, more than three times the July 31 price. “We believe we will be able to pay back the government and we hope we will be able to do something for our shareholders as well,” Benmosche said in a Bloomberg Television interview on Aug. 20. AIG will rebuild assets and won’t be pressured by regulators to sell businesses at unfavorable prices, he said in the interview.

The Treasury documents were turned over last month in response to a March FOIA request from Judicial Watch, according to Chris Farrell, director of investigations at the Washington- based organization. Christina Pretto, an AIG spokeswoman, declined to comment. “They incorporated the ‘highly speculative’ line onto that slide for a reason, and someone elected to have it removed,” said Farrell. “Both of those pieces of information let the reader draw conclusions about what went on at Treasury.” In the latest revision to AIG’s rescue in March, Treasury’s commitment swelled to as much as $70 billion, bringing the bailout package to $182.5 billion. That includes a $60 billion Federal Reserve credit line and $52.5 billion to buy mortgage- linked assets owned or backed by AIG.

AIG posted a $1.82 billion second-quarter profit on Aug. 7 on narrowing investment losses and a rebound in the value of some derivatives. The company also benefited from gains in hedge-fund holdings. The insurer has used proceeds from some asset sales to shore up its property-casualty operations rather than repay the U.S. The company retained $2.4 billion from the sale of auto insurer 21st Century to Zurich Financial Services AG and from the public offering of reinsurer Transatlantic Holdings Inc. to improve the “quality of capital” at its Chartis Inc. division.

AIG won access in November to the $40 billion Treasury investment. Geithner committed as much a $30 billion more in March when the company announced a record fourth-quarter loss. AIG said this month that it tapped $1.2 billion from the second facility to shore up its U.S. life insurance and retirement services operations. The funds helped the units maintain “solid” risk-based capital ratios, a measure of an insurer’s strength, AIG said. The insurer agreed in September to turn over a stake of almost 80 percent in exchange for the bailout. AIG said in November, when it announced the $40 billion investment, that Treasury would get preferred shares with a 10 percent coupon. The company said in March that Treasury’s investment would be modified to “more closely resemble common equity and improve AIG’s financial leverage.” AIG also won a lower interest rate on its credit line.

Massachusetts Secretary of the Commonwealth William Galvin has subpoenaed Goldman Sachs for more information about its "trading huddles"--the internal meetings in which analysts produce near-term trading ideas that are given to the firm's proprietary traders and a select group of clients but not disseminated broadly. Galvin's concern? This is selective dissemination that benefits Goldman and its biggest clients and screws everyone else.

Our guest Susanne Craig broke the Goldman story for the Wall Street Journal that led to Galvin's investigation. She thinks Goldman's "huddle" practice raises several important questions, such as whether the select group of clients are being "tipped" about future ratings changes. If that is in fact what is happening--explicitly or implicitly--the practice should be investigated. But as a former Wall Street analyst, I think there is a much more important lesson here:

It will never be a level playing field.

The best clients of firms like Goldman Sachs will always get better information from the firm's traders and analysts than small investors. Big investors will always get better access to companies than small investors. Big investors will always be able to afford better research, better analysis, and better trading systems than small investors. (Just one example: The facial expression of a CEO when asked a tough question is often more revealing than a hundred-page SEC filing).

By implying that the playing field should or can be level, regulators encourage small investors to think that it usually is. This is crazy. The sooner small investors learn that the better.

House Financial Services Chairman Rep. Barney Frank, Massachusetts Democrat, said he expects former GOP presidential candidate Ron Paul's legislation to audit the Fed to pass out of his committee in October as part of a larger regulatory package. Rep. Paul's, Texas Republican, bill if added to Mr. Frank's other proposed reforms could give a boost to a financial regulation package the Obama Administration wanted to pass last spring. The Fed bill has 282 co-sponsors, including every Republican member of the House and a considerable number of Democrats. The Senate's lead sponsor of the bill is Sen. Bernard Sanders, a Vermont independent and self-described socialist.

Today, the Government Accountability Office has no power to audit the Federal Reserve. Mr. Paul's bill would empower the government watchdog to do so and make their findings available to the public. Mr. Frank was asked at a town hall meeting when he would put the bill up for a vote in committee and after giving a lengthy explanation of current problems with the Federal Reserve Mr. Frank said he was working with Mr. Paul and that, "This will probably pass in October." Below is a complete transcript of Mr. Frank's remarks concerning the bill:

"I have been pushing for more openness from the Fed. I want to restrict the powers of the Federal Reserve. First of all, the Fed will be the major losers of power if we are successful, as I believe we will be, setting up a financial product protection commission. The Federal Reserve is now charged with protecting consumers. They were supposed to do subprime mortgage restrictions.

Congress in 1994 gave the Fed powers to ban subprime mortgages. Alan Greenspan refused to do it. They had the power to ban credit card abuses. Under Greenspan they did nothing. Under Bernanke they started but only after Congress acted.That's one of the reasons why in the new consumer protection agency, we will take away from the Federal reserve the power to go consumer protection.

Secondly, they have has since 1932 a right under Herbert Hoover to intervene in the economy whenever they could. Last September, the Federal Reserve they were going to advance $82 billion to AIG. I was kind of surprised and said, 'Mr Bernanke do you have $82 billion?' Mr. Bernanke replied, 'I have $800 billion and under section 13.3 of the Federal Reserve Act they can lend anything they want.'

We are going to curtail that lending power. We are going to put some restrictions on it. Finally we will subject them to a complete audit. I have been working with Ron Paul, who is the main sponsor of that bill. He agrees that we don't want to have the audit appear as if influences monetary policy as that would be inflationary.

One of the things the audit will show you is what the Federal Reserve buys itself. And that will be made public, but not instantly because if it was made instantly people would be trading off it, so the data would be released after a time period of several months, enough time so it will not be market sensitive. This will probably pass in October."

More than two dozen firms that have surfaced in a broad corruption investigation of public pension funds gave at least $1.97 million in campaign contributions to officials with potential influence over the funds' investments, a USA TODAY analysis shows. The givers included private-equity giants such as the Blackstone Group, the Carlyle Group and the Quadrangle Group, the firm founded by Steven Rattner, who in July resigned as the White House point man for the auto industry rescue. The contributions are legal, and the firms haven't been accused of wrongdoing related to the giving.

The analysis of donations since 1998 showed the money flowed in 30 states to incumbents and candidates for governor, treasurer and other posts that influence billions of dollars in pension fund awards. Several of the firms won pension investment work after they, their executives or hired intermediaries gave contributions. The awards generate lucrative fees and lend prestige that could help lure new clients. Several states are investigating the awards after charges last spring in New York that a former pension fund official, a political adviser and others got millions of dollars for influencing investments by the state's pension fund. The Securities and Exchange Commission has filed parallel civil charges.

The probes come as pension funds have increasingly invested more of their $2.2 trillion in assets with private-equity firms and hedge funds as they seek returns that outpace the stock market. The interest has been reciprocated, as the private firms vie for the fees involved. The financial stakes have sometimes bred corruption. Kent Nelson, owner of a California investment business, pleaded guilty to devising a fraud scheme in a 2005 court case that accused him of paying a New Mexico official for state investment deals.

And in 2003, Charles Spadoni, the former vice president of a Boston investment firm, was convicted of racketeering, obstruction of justice and other charges in a case that accused him of agreeing to provide consulting deals to friends of Connecticut's treasurer in exchange for $200 million in pension fund awards. An appeals court overturned all but the obstruction conviction last year and ordered a new trial.

Conflicts of interestEven in cases with no charges of illegality, watchdogs argue that the campaign contributions — known as pay-to-play — create conflicts of interest. "The selection of investment advisers to those plans shouldn't be based on campaign contributions. They should be based on the merits," said Mary Schapiro, chairwoman of the Securities and Exchange Commission, which she said is probing potential pay-to-play cases "in multiple states." The SEC in July proposed a rule that would disqualify firms from being awarded pension fund investments for two years after making campaign contributions over $250. Schapiro said the rule is crucial because pay-to-play practices harm pension fund beneficiaries by fostering "subpar advisory services at inflated prices."

New York Attorney General Andrew Cuomo, whose office began a now-two-year corruption investigation that has recently been expanded by other states, issued a code of conduct with similar restrictions earlier this year. The probes focus in part on charges that some firms met kickback demands by public officials or others in exchange for pension fund awards. Cuomo's investigation so far has produced two guilty pleas and criminal charges against four defendants.

The suspects include Hank Morris, a nationally known campaign strategist who was the top political adviser to former New York state comptroller Alan Hevesi, and David Loglisci, a former Hevesi aide at the nation's third-largest public pension fund. Both have pleaded not guilty. The probe also is examining private investment firms' hiring of placement agents, intermediaries who at times use political connections to help win pension fund business. Several funds have recently banned the practice. Cuomo said the alleged illegality and separate ethics issues uncovered in New York are part of "a nationwide problem."

Prominent giversUSA TODAY's analysis focused on private firms mentioned but not charged with wrongdoing in the pay-to-play cases filed by Cuomo and the SEC. The analysis, based on campaign financial disclosure data collected by the National Institute on Money in State Politics, found many contributions to pension officials in New York and elsewhere. Prominent givers included David Rubenstein, co-founder of the Carlyle Group. He contributed $48,000 since 2002 to Hevesi's election bids, records show.

Carlyle manages nearly $1.5 billion for the New York state pension fund and received about $38.6 million in management fees since the state's 2004 fiscal year, said Robert Whalen, a spokesman for Thomas DiNapoli, New York's current comptroller. Carlyle executives or employees also gave at least $114,375 to 18 pension fund officials or office seekers in 10 states since 1998, the campaign records show. Those donations included at least $28,750 in California, where records of the state's main pension fund, the nation's largest, show it has committed more than $4.1 billion to investments in 28 Carlyle funds since 1996.

Carlyle surfaced in the New York investigation via its energy-related joint venture with Riverstone Holdings, a smaller private-equity firm. In 2003, a Riverstone executive learned the venture could get a New York pension fund management deal by retaining Morris "as a finder," according to the SEC's court complaint. Carlyle agreed to the hiring even though it already "had its own in-house marketing operation and was spearheading the marketing efforts" for the joint venture, the SEC alleged. Although the Carlyle-Riverstone team had previously managed only one small energy fund, the joint venture got a $500 million pension fund investment after hiring Morris. He was paid $4.75 million in fees on the deal, according to the SEC complaint.

In a June agreement with Cuomo's office, Riverstone agreed to pay a $30 million settlement and end its use of placement agents in seeking pension fund work. In May, Carlyle agreed to pay $20 million and enact reforms to resolve its role in the New York case. The reforms included adoption of the Cuomo code of conduct, which bars investment firms from doing business with a pension fund for two years after making a campaign contribution to an official able to influence the fund's investment decisions.

Carlyle backed Cuomo's bid "to implement reforms that usher in a new era of transparency and accountability into the pension fund investment process." The firm said in a news release that it would file a lawsuit seeking $15 million in damages from Morris and the brokerage where he worked "for the harm" they caused Carlyle. Company spokesman Christopher Ullman declined to say whether the lawsuit has been filed. Commenting on the campaign donations, Ullman said, "These contributions were given by Carlyle employees on their own behalf and were properly disclosed to the public." The firm now has a $300 limit on contributions to state or local officials, said Ullman, who added that the giving must be pre-approved by Carlyle's compliance officer.

Blackstone contributionsOfficials of the Blackstone Group have similarly contributed to pension fund incumbents and candidates. The firm's chairman is co-founder Stephen Schwarzman, a former Lehman Bros. executive. Co-founder Peter Peterson retired as Blackstone's senior chairman in 2008. Campaign finance records show Schwarzman; his wife, Christine; and Peterson gave a combined $30,000 to three candidates who ran in 2002 to succeed H. Carl McCall as state comptroller. Hevesi, the winner, got the most, $21,000. Separately, McCall received $25,000 from Christine Schwarzman for his unsuccessful bid for governor.

Blackstone has received about $1.74 billion in private equity- and real estate-related investments from the New York pension fund since 1993 and has been paid about $20 million in fees, said Whalen, the state comptroller's spokesman. The firm has not been accused in the New York investigation. Stephen Schwarzman gave $11,000 to Pennsylvania Gov. Edward Rendell's races in 2002 and 2006, campaign finance records show. Pennsylvania's governors by law appoint six of the state pension board's 11 members. Blackstone's relationship with the Pennsylvania pension fund dates to at least 1994 and includes more than $2.8 billion in private-equity, real estate, stock and other investments, a state summary shows. The deals have paid about $129 million in fees.

Blackstone declined to comment directly on the Pennsylvania contributions. Spokeswoman Christine Anderson said the firm adopted a policy more than three years ago that required Blackstone's general counsel to approve campaign giving. The policy "banned outright contributions to candidates for office with direct, day-to-day oversight" of public pension funds, Anderson said. As the New York investigation expanded this year, Anderson said Blackstone "proactively" tightened the policy to include governors and others in pension funds' command chains.

Tightening regulationThe Quadrangle Group is a global private investment firm founded by Rattner, a chief architect of the federal bailout of Chrysler and General Motors. In 2005, the firm sought an investment from the New Mexico State Investment Council, which manages the $12 billion state endowment created by oil, gas and natural resource extraction fees. The nine-member council, chaired by Gov. Bill Richardson, approved a $20 million Quadrangle investment in November 2005, state records show. The award has generated about $1 million in fees for Quadrangle so far, said council spokesman Charles Wollmann.

Rattner gave $5,000 to Richardson's election committee in 2002, campaign finance records show. Long known as a major Democratic fundraiser and contributor, Rattner gave an additional $15,000 to Richardson in 2006, the records show. The gifts didn't pose a conflict because Richardson didn't vote on the Quadrangle investment, Wollmann said. However, the panel in May approved a policy restricting campaign gifts by executives and others connected to firms that receive investments. It bans campaign gifts to elected and appointed officials serving or seeking posts "that may have influence over" the investment council and other state investment boards. The ban applies during the term of investment deals and for two years after. Had it been in effect then, it could have barred Rattner's 2006 contribution to Richardson. Quadrangle declined to comment.

The SEC pay-to-play proposal, unveiled July 22, would impose a two-year ban on pension fund awards to advisers that have given more than $250 in campaign contributions to any public official able to influence the fund's investments. The rule would cover donations to incumbents and challengers and would apply to investment executives, their firms and some employees. The proposal is similar to a never-enacted 1999 SEC plan. It would bar investment advisers from directing political action committees or intermediaries to make such contributions. It would also bar investment advisers from paying intermediaries to solicit pension fund investments and would prohibit indirect contributions.

The SEC is scheduled to set a final vote on the crackdown after a 60-day public comment period. "It's certainly an issue that we think, based on our enforcement experience, really deserves our attention," said Schapiro.

Uncle Henry is still clucking away on Wall Street even though we know his imaginary financial eggs crashed the world financial system -- fantasy finance eggs that turned into trillions of dollars of financial toxic waste. To prevent the Great Depression II, we could not afford to institutionalize all the Uncle Henrys. In fact, we had to bail out their institutions with trillions of dollars of tax payer money.

Uncle Henry is still laying his imaginary eggs. Goldman Sachs, for example, recently announced it was selling synthetic CDOs again even though these are the most prone-to-disaster financial instruments ever created by Wall Street's financial engineers in the run up to the crash of 2008. (Of course, they are still unregulated.) Even more importantly, Uncle Henry wants to be paid in full for those eggs, just like he was paid before the crash, a time when everyone thought the eggs were golden.

Andrew J. Hall, for example, an oil speculator, expects to receive a $100 million paycheck from CitiGroup -- the same bank that has received more than $350 billion in taxpayer funds and asset guarantees. When we object to this obscene payday, we are told that Hall lays the best golden eggs, that he has a valid contract to be compensated for his eggs, and that CitiGroup needs the eggs so that it can repay the taxpayer. While Uncle Henry would certainly feel comfortable with this logic, it drives me insane. After all, Hall's contract would have been worthless had we not bailed out CitiGroup. (Beyond that is the critical question of whether or not Hall's eggs represent any real value to our economy, or just pure speculative actions that actually just transfer money from the rest of us to him, as I argue here.

France also is questioning the logic of paying astronomical sums to its own Oncle Henris. They are calling for new regulations that would allow no more than one third of any bonus to be paid out in the first year. The balance would be payable over the next two years. Also, at least a third of the bonus must be paid in stock. And here's the kicker: If the trader's department loses money in any of those next two years, the trader with the big, fat bonus would lose part of his deferred bonus. Critics already are blasting away at these modest restrictions. They seem outraged by the idea that a trader could be punished for his group's performance: "Regardless of the performance of an individual trader, if his group loses money because some imbecile makes a bad bet then the trader gets hammered."

Amazing! Just imagine how often regular workers suffer, regardless of their performance, because some management "imbecile makes a bad bet." I wonder how this sounds to the 30 million unemployed and underemployed who lost their jobs because "some imbeciles" on Wall Street crashed the system. France doesn't want to lose Oncle Henri to our banks, so it's threatening not to give foreign banks government business if we don't also slap on similar pay restrictions. Of course, France would prefer if the world's leading industrial nations during the next G-20 meeting agreed upon similar restrictions. But the odds are slim. It is likely that more than a few countries will see an opportunity to lure Oncle Henri and his eggs into its banks.

But this is truly insane. All evidence suggests that Uncle Henry's speculative plays on Wall Street and elsewhere destabilized the world economy. The so-called financial innovations that made us believe that the eggs were gold turned out to be fool's gold. Rather than dispersing risk, they linked it together all over the globe. I have yet to see any evidence to suggest that these fantasy finance "innovations" (CDOs, CDO squared, synthetic CDOs and the like) added any value at all to the real economy -- and I've been looking! The Uncle Henrys of this world make and profit from casino games, not from creating economic value. Worse still, it seems that too many of us still believe that Uncle Henry deserves to be paid astronomical sums. But these pay packages cannot be justified by any economic theory -- the only justification comes from the cynical theory of the golden rule: he with the gold rules.

As far as I'm concerned France's proposals don't go nearly far enough. Vast sums can still go to Uncle Henry. All they are asking is that most of the eggs that are produced won't disappear in three years, and that they are a little less poisonous. My preference would be to slap on a hard cap that limited salaries and bonuses to no more than what the president of the U.S. receives -- $400,000 -- at least until the unemployment rate comes down below 5 percent. Of course Uncle Henry won't like that. But I'd like to find out what would happen if he took his imaginary eggs and waddled off into the sunset.

The old-fashioned streetlight is the recession's latest victim. To save money, some cities and towns are turning off lights, often lots of them. The cost-cutting moves coincide with changing attitudes about streetlights. Once viewed as helpful safety measures, the lights are increasingly seen by some public officials and researchers as an environmental issue, creating light pollution and burning excess energy.

In July, Santa Rosa, Calif., started a two-year effort to remove 6,000 of the city's 15,000 streetlights. An additional 3,000 will be placed on a timer that shuts lights off from midnight to 5:30 a.m. Savings: $400,000 a year. The city boasts that it will cut its carbon footprint. What really matters, though, is money. Public works director Rick Moshier says he'd already cut his department's budget by 25% when he turned to streetlights. "I can either fix potholes and storm drains or keep paying $800,000 a year for electricity," Moshier says.

Turning out the lights has met some local resistance. Santa Rosa has a hotline for complaints. "What about the human factor?" says Kenneth Ozoonian of North Andover, Mass. His town is turning off 626 streetlights — about one-third of the town's total — to save $47,000 annually. "Some of these lights have been on for 40 or 50 years. The elderly, children and the disabled need the light," he says. Other towns flipping the switch:

Dennis, Mass., on Cape Cod is considering shutting off 832 lights to save $50,000 a year.

Montgomery, Pa., had its police department choose which lights would go. The town turned off 31 lights, one-third of the total, to save $6,000.

South Portland, Maine, joined several other Maine towns when the City Council voted to turn off 112 lights, saving $20,000 a year.

In Minnesota, cities and towns are starting to charge "streetlight fees" to cover the cost. Northfield, Minn., a city of 19,000 will decide next month whether to add a $2.25 streetlight fee to monthly water and sewer bills. More than 30 Minnesota towns have added the fee. "Streetlights are more expensive than people realize," Northfield Mayor Mary Rossing says. Her city spends about $230,000 a year on streetlights. Many cities are leaving streetlights at intersections but removing them from residential neighborhoods, especially from the middle of blocks.

Most cities use more light than they need, at least in some places, says scientist John Bullough of the Light Research Center at Rensselaer Polytechnic Institute. Towns should be careful about removing lights, he says. "It's not something you want to do by throwing darts at the map." There's little evidence to support the belief that streetlights reduce crime, he says. However, lighting does reduce traffic accidents, especially at intersections. The nation's streetlights consume electricity equivalent to 1.4 million homes. They generate greenhouse gases equal to 2 million cars a year. "Do we really need this many lights on? Do we really need this much wattage?" asks Johanna Duffek of the International Dark-Sky Association.

Record-breaking heat in parts of Texas is causing electricity bills to soar, just when most consumers were expecting some relief from sinking natural-gas prices. The protracted heat wave -- Austin on Monday recorded its 64th day of 100-plus degree weather since June 1 -- has pushed electricity demand up to record levels, as air conditioners run overtime. To meet the demand, costlier electric generators have been pressed into service. As a result, electric rates and consumer bills have risen despite the lower price of natural gas, which is used to generate most of the electricity in Texas.

Ray Basham, a press operator who lives in west San Antonio, saw his bill jump from $170 in June to $245 in July. That is partly because his utility, CPS Energy, raised its price per kilowatt hour to 10.4 cents in July, from 9 cents in June, when two power plants broke down and the utility had to go into the open market to purchase replacement power. "Luckily, my wife and I have jobs, so we could pay," he said. Last year, Texas was reeling from exceptionally high electricity rates caused by rising natural-gas prices. Gas prices have since fallen to about $3 per million British Thermal Units from a high of $13.

The average, around-the-clock temperature in San Antonio this summer has been 87.9 degrees, beating the old record set in 1980 of 86.2 degrees. Houston, at 86.6 degrees, averaged over a 24-hour period, is slightly above the old record of 86.4 set in 1980. In Austin, the average temperature has been 88.6 degrees -- the hottest since records began in 1898 -- beating the prior record of 86.7 degrees in both 2008 and 1998. The average household in Austin consumed 2,157 kilowatt hours of electricity last month, costing $235. Roughly 8% of households are delinquent with utility payments. Austin Energy is rolling out a plan to let residential customers pay 25% of their bill immediately and spread the remaining 75% owed over a six-month period.

In San Antonio, more customers of CPS Energy are asking for extra time to pay bills or for assistance. "Usage is up and the economy is stressing people more than last year," said utility spokeswoman Theresa Brown Cortez. The utility has given away thousands of fans, hoping it will help customers cut back on air-conditioning use. Ann Palu, a 45-year-old travel agent who works from her San Antonio home, keeps her thermostat higher this year than last, but still used almost 2,400 kilowatt hours of electricity in July, up 40% from a year ago, costing her $230.

Extra yard watering has pushed up her water bill by $20 for the additional 4,000 gallons she used in July, compared with the same month last year. "It is not outrageous, but still, everything is going up," Ms. Palu said. At the start of the year, the state's grid operator expected energy demand to rise about 2% in 2009. But usage actually dropped 5% to 7% early in the year amid the recession. Heat since June has pushed energy use back up, although total consumption still is down 3% year to date. Texas set a record for peak energy use on July 13 when demand hit 63,453 megawatts, 1,114 megawatts higher than the prior record of 62,339 megawatts in August 2006.

The whole southern part of the state is experiencing its driest conditions in more than a century. Economists at Texas AgriLife Extension Service estimated in July that the drought has cost farmers $3.6 billion in crop and livestock losses. State officials predict losses will top the record set in 2006 of $4.1 billion. About 240 public water systems are enforcing mandatory water restrictions in the state and a further 64 are asking for voluntary reductions. In early August, the water level of Lake Travis, which provides drinking water to Austin, reached its third-lowest level in history.

Randy Chapman, an attorney for Texas Legal Services Center, which provides legal assistance to low-income people, says many consumers signed up for electricity pricing plans last year and now are paying as much as 15 cents a kilowatt hour for electricity. The average U.S. electricity price in May was 9.87 cents a kilowatt hour, according to the Energy Information Administration. Consumer groups asked state utility regulators to order energy suppliers to waive fees for early termination of contracts, sometimes $100 to $200, to let people shop around. The commission said it doesn't want to interfere in private contracts.

More Americans are having their power shut off as the weak economy makes it harder to pay bills. "We see record numbers of households becoming disconnected or in danger of disconnection," says Mark Bixby, energy director of Rockford, Ill. Five years ago, his office distributed federal funds annually to about 300 households that had their power cut off. Last year, it was 1,834 households, and the number is likely to go up this year, he says: "It's families that can't find work." ComEd, which supplies electricity to 3.8 million customers in northern Illinois, says it has disconnected more this year than last but declined to provide specifics. The utility saw a 14% increase in bills 60 days late in the first half of this year compared with the same period last year, spokeswoman Kim Johnson says.

Regulations differ by state, but utilities generally may not cut power off during extremely cold, and in some cases extremely hot, weather. Utilities say they try to help customers avoid disconnection with payment plans, referrals to social service agencies and grants to pay bills. This fiscal year, the federal Administration for Children and Families distributed a record $5.1 billion to states to help low-income households pay energy costs. The federal stimulus package includes $1.5 billion to prevent homelessness, in part by helping people pay utility bills.

Nationwide:

Piedmont Natural Gas, which has 1 million customers in North Carolina, South Carolina and Tennessee, disconnected 9,039 North Carolina customers from November 2008 through February 2009, up 68% from the same period a year earlier. "The economy's having an impact," spokesman David Trusty says.

Public Service Electric and Gas, which has 2.3 million customers in New Jersey, has seen a 20% increase so far this year in customers at least two months behind, says billing director Victor Viscomi.This year, 30,000 more customers received financial assistance. Unemployment and foreclosures are growing, Viscomi says, and "bankruptcies are up approximately 30% among customers."

At Arizona's Home Energy Assistance Fund, requests for help with utility bills are up 40% from last year, program manager Katie Morales says.

Chris Cox, 30, of Tucson, called after he got a cutoff notice. The father of four says he's two months behind and owes $400. Cox, who works in ad sales, says his commissions have fallen by more than half in four months. "I have family and friends that would have normally been in a position to help, but they aren't able to now," he says. "I don't know what I'm going to do."

European companies are hitting out against proposed reforms of the derivatives markets, saying that new rules requiring contracts to be routed through clearing houses could impose a huge drain on corporate cash. Already, US companies ranging from Caterpillar and Boeing to 3M – which use derivatives contracts to hedge interest rate, currency and commodity price risks – have been lobbying lawmakers to highlight the potential higher costs of a proposed overhaul of rules on derivatives.

Aimed at preventing a re-run of the financial crisis in which derivatives positions at AIG and other financial firms created risks for the entire financial system, new rules for clearing might also affect non-financial users of derivatives. In comments on European Commission proposals for the over-the-counter derivatives market, the London-based Association of Corporate Treasurers says that current plans could require billions of pounds of extra cash that companies would have to hold against positions or post as margin.

Citing the case of Rolls-Royce, which in its accounts states the value of its foreign exchange contracts, John Grout, policy and technical director at the ACT, estimates fluctuations in the value of these long-term hedges could have resulted in the need for a further £2.5bn (€2.8bn) of margin payments in 2008. “Rolls-Royce is not unusual or unique,” he said. “Its figures show the kinds of routine cashflow fluctuations which could be imposed on companies.”Privately negotiated, or over-the-counter, derivatives are widely used by many of the world’s biggest companies. In an arrangement mostly agreed between companies and banks, the banks do not usually require much of the margin against the positions to be paid in cash or liquid securities such as US Treasuries, agreeing instead to set the positions against credit lines or other assets.

Meanwhile, a shift to centralised clearing houses would be likely to require cash as collateral. The ACT comment paper, submitted on Thursday to the European Commission, says the proposed rules could introduce new risks to companies. “In attempting to remove the credit risk between a company and a bank which is not systemically significant, a serious liquidity risk for the firm would be introduced instead.”

The German patient has been stabilised after a frightening fall - but it is not out of danger. The IFO survey of business sentiment is the most optimistic in almost a year. But the 0.3pc quarterly GDP growth in the second quarter was in large measure technical: a reflection of a decline in imports that exceeded the decline in exports. A strong German revival looks out of the question. A relapse remains a big danger. GDP is 7.1pc lower than a year ago – almost double the fall recorded by the US economy. The huge slump in world trade has flattened a country that relies on consumers elsewhere to fuel its growth.

Yet things would have been still worse without help from neighbours. A UK programme to send old cars to early graves favoured Germany's car producers. Such incentives won't run forever. Germany's capacity must adjust to weaker world demand. So far the government has helped stall that process and the rise in unemployment has been kept minimal by government incentives. Angela Merkel, the Chancellor, though a reluctant fiscal nurse, has presided over two fiscal stimulus packages. The government's balance has swung from 7bn euros (£6.15bn) surplus in the first half of 2008 to 17.3bn euros deficit in the first half of this year.

At about 3pc of GDP on an annualised basis, that remains small by profligate US and UK standards. But with the euro excessively strong and a reluctant world market, any export recovery is likely to be weak. The result would be a higher deficit, higher unemployment and lower domestic demand. Chronic weakness in domestic spending is the underlying source of Germany's frailty. An ageing, shrinking population is cautious, and economists might argue that Germany needs a flow of immigrants to give fresh life. . But that is one treatment no major German politician will endorse, even after the September election.

The City has grown too big and parts of it are "socially useless", according to Lord Turner, chairman of the Financial Services Authority. He said that the City had grown "beyond a reasonable size", accounting for too much of British output and taking away too many of the country's brightest graduates. It should be cut down to size through new taxes if necessary, he said during a round-table discussion organised by Prospect magazine.

"I think some of it is socially useless activity," he said, referring to the complex financial instruments that have largely been blamed for triggering the biggest global financial crisis in decades. Areas that had grown too big included fixed income securities, derivatives, trading and hedging, and possibly also asset management and share trading.

Lord Turner said he would be in favour of imposing City-specific taxes, if necessary. "If you want to stop excessive pay in a swollen financial sector you have to reduce the size of that sector or apply special taxes to its pre-remuneration profit," he said. If higher capital requirements did not eliminate "excessive activity and profits", options could include taxes on financial transactions – Tobin taxes, after the economist James Tobin. Lord Turner said the FSA would push banks to defer more bonuses and to pay more in shares, not cash. There will remain four or five global financial centres, and it is almost certain that one will be London," he said.

The sharpest fall in business investment in 44 years shocked economists yesterday who said it increased the risk that figures released today will show the economy shrank by more in the second quarter than the 0.8pc initially thought. Business investment slumped by 18.4pc to £29.9bn in the second quarter, compared with the same period a year earlier, the Office for National Statistics (ONS) said. It was the largest annual decline since records began in 1965. Compared with the first three months of this year, business investment tumbled by 10.4pc, which was the second worst drop on record. Economists had been expecting a much smaller fall of 3.6pc,

Economists warned that businesses' failure to invest in the wake of the recession would have severe consequences for the long-term economic future of Britain, and in the shorter term, increased the likelihood that the ONS would today revise down second-quarter gross domestic product from -0.8pc. "I would be surprised if there is not a significant downward revision to -1pc or -1.1pc," said Ross Walker, economist at Royal Bank of Scotland.

Alan Clarke, economist at BNP Paribas, agreed: "Unless there is an upward surprise elsewhere in the breakdown that offsets the diabolical business investment component, we could be looking at a downward revision to -1pc or lower. "Ahead of the [business investment] survey, I would have thought an upward revision was more likely, but we were expecting a 2pc to 3pc quarter-on-quarter fall, not 10.4pc." The GDP figures at this stage are predominantly based on output measures, including manufacturing, services, and construction output, rather than on expenditure measures like business investment, which makes it difficult to predict precisely what impact yesterday's data will have on today's GDP figures.

David Page, economist at Investec, said that while business investment "raises the risk" of a downward revision, it was not certain because other output measures, including industrial production, were better than first realised. Businesses have been hit by an unsavoury cocktail of falling profits, poor credit availability, a high cost of capital, and weak company liquidity, and investment has fallen more sharply during this recession than it did in the recessions of the early 1980s and early 1990s. In the second quarter the decline in investment was broadly-based but it fell particularly sharply within private sector services and construction, the ONS said.

"The further sharp decline in business investment signals serious threats to Britain's long-term recovery. In the face of weak demand and mounting financial pressure, businesses have little choice but to cut investment and stock," said David Kern, chief economist at the British Chambers of Commerce. "Unless this trend can be reversed, the long-term productive capacity of the economy will be damaged, and the country will lack the necessary capital stock to sustain a recovery. This must be kept in mind when the government plans a fiscal strategy to repair the public finances. It is critical not to impair the business sector's ability to invest and create wealth."

There was better news in the US, where economists were pleasantly surprised to learn that the economy there shrank at an annual pace of 1pc in the second quarter, unrevised from the initial estimate last month. Economists had predicted the number would be revised down to reflect a 1.5pc fall.

Vik, Norway - The 2,800 residents of this pristine village isolated on a narrow finger of the gleaming Sognefjord are embarrassed, angry and eager to get their money back. So are the townspeople of Bremanger, Hattfjelldal and Hemnes, not to mention those of Kvinesdal, Narvik and Rana.

The seven small communities, lodged deep in a timeless Norwegian landscape of fiords and snow-clad mountains, somehow got caught up in the go-go markets of big, distant cities such as London and New York. At the time, it seemed like an easy way for the towns to get rich. But when the global financial crisis struck, they ended up getting burned by big-time investments beyond their ability to manage or even understand.

Along with what remains of their bankrupt brokerage firm in Oslo, the faraway Norwegian capital, the seven towns brought suit in New York on Aug. 10 against Citigroup, demanding $200 million in reparations from the U.S. banking giant. High-rolling Citigroup salesmen, they charged, lured unsophisticated Norwegian town councils into an investment scheme so complicated that nobody could fathom it and so risky that, when worldwide markets went wobbly, the little towns lost millions as suddenly as a salmon leaps from the fiord's chilly waters to gobble down a fly.

The improbable voyage of Citigroup's arcane investment model -- from frantic trading rooms in New York and London to tranquil waterside villages such as Vik, where townspeople see no need to lock their doors -- suggests some of the reasons the international financial system exploded almost a year ago: the unchallenged spread of greed, recklessness and, above all, faith that churning around those millions would somehow bring endless profits for all.

"The small communities who went to the market all hoped to get rich," a chastened member of Vik's city council, Morten Oystein Holmberg, said in an interview at his home overlooking the gentle rapids of the Vikja River bubbling toward the Sognefjord. "As politicians, now we know we are not entitled to gamble with citizens' money. That's my conclusion."

The collapse of the seven towns' investments, which had become chillingly clear by May 2008 and was irreversible by the time the crisis rippled across the globe last fall, left a lot of debris in its wake. Terra, the Norwegian securities firm that was the go-between with Citigroup, was forced into bankruptcy. Its residual interests are being represented by a prominent Oslo lawyer, Jon Skjorshammer, whose Selmer & Co. law firm brought the suit against Citigroup in U.S. District Court for the Southern District of New York.

"The only ones who made money from these investments were the issuer and the broker," Skjorshammer said in his sleek offices overlooking an Oslo boat slip. "And now the lawyers," he added, chuckling softly.

A London-based Citigroup spokesman, Adam Castellani, said the bank rejects any responsibility for the towns' losses because, in its portrayal to Terra, the risks were clearly pointed out. "As Citi has maintained throughout, we are confident that the risks of investing in the notes were described in the materials provided to Terra Securities," Castellani said in a statement. "We intend to vigorously defend our position."

Local governments around the world lost big money on complex investments. Alabama's largest county is verging on insolvency after paying tens of millions to JPMorgan Chase & Co. and other banks for what amounted to losing bets on interest rates. More than 20 Massachusetts cities and towns bought long-term bonds described as ultra-safe from the Swiss bank UBS and then watched the values drop.

In the little Norwegian towns, mayors and council members are struggling to make up the losses. The national government had to change the law to give them more time to balance their budgets. One of the biggest losses was to their reputations. National newspapers portrayed them as country bumpkins who got rolled by slicks from the big city.

But there were more practical losses as well. Streetlights were turned off during the dark Arctic night in far-northern Narvik. Town halls in several communities lowered the temperature to cut back on heating bills during the frigid Norwegian winter. Here in Vik, the budget was scaled back so much that some of the elderly were sleeping in hallways at the local retirement home and there was no money to put water in the town swimming pool. Kurt Arne, in the town economic bureau, said 10 city employees were let go to shave the municipal payroll. "In every service, we've had to look for cuts," he lamented.

A little off topic, but I'm so sick of all the green-shooters saying we can "get back" to where we were before (2003-2007 timeframe). That wasn't "normal" - that was a bubble! The reason things are so down now is because we overconsumed then and so must reequalize now. If we hadn't been so obsessive then, then maybe we wouldn't have so much overcapacity now.

We wouldn't want to go back to that even if we could. That's why none of the comparison numbers make any sense (I.e. construction down x%, etc.). It was unrealisically high then.

“Internet companies and civil liberties groups were alarmed this spring when a U.S. Senate bill proposed handing the White House the power to disconnect private-sector computers from the Internet.

They're not much happier about a revised version that aides to Sen. Jay Rockefeller, a West Virginia Democrat, have spent months drafting behind closed doors. CNET News has obtained a copy of the 55-page draft of S.773 (excerpt), which still appears to permit the president to seize temporary control of private-sector networks during a so-called cybersecurity emergency.

The new version would allow the president to "declare a cybersecurity emergency" relating to "non-governmental" computer networks and do what's necessary to respond to the threat. Other sections of the proposal include a federal certification program for "cybersecurity professionals," and a requirement that certain computer systems and networks in the private sector be managed by people who have been awarded that license.”

I was talking to a hay farmer in eastern Oregon a couple of months ago. He told me that the local farmers were having a terrible time getting financing so they could plant. He had savings so he could self-finance so to speak.

I wonder how banks refusing to lend is effecting farm production and leading to decreased profits as opposed to lower commodity prices.

I think you make Starcade's point (from yesterday's post) The majority does not need to take up violence against any group for that group to be endangered, all it takes is the majority "turning away" to allow even a tiny minority to wreak havoc, then it can become the norm and can be institutionalized as a societal standard. The willingness to act on such things is easy to find, even in only the last few years. Whether the beating to death in wyoming(?) of the gay guy (shepard?) or the dragging of the black man behind the truck in texas. The less the supermajority of the masses cares the more likely an expanding minority will feel free to act, and "roll a few hobos". I mean because it is not like they are human...

How can I find a (more or less) reliable estimate of the amount of credit that has disappeared since the bubble burst? It it possible to find it updated monthly? It would be helpful to compare that number to some of the others that people worry about, like bank excess reserves or total bailout money spent/created.

The health care topic is a tree in the forest, as far as the context of this blog go. As are for the most party ordinary partisan politics. Now we all might be crazy doomers for thinking we can see the whole forest burning but don't confuse that with alignment with the Howard Beale's of the world.

I personally am all for a single payer system, which cannot happen, since it isn't a proposal on the table. A robust public option is certainly a preferable policy, all things being equal. Equal to the economy as we have known it since the end of WWII continuing. If your convinced however that economy is over then devoting your energy to fighting for such reforms becomes pointless. Which I think it's fair to say summarizes the view here. For me I think the effort as sort of Quixotic.

Both insurance corporations and reformers fight for what amounts to rearranging deck chairs on the Titanic. The real possibilities of a once in 500 years scale economic dislocation rolling over everything will drown healthcare –profits, humanitarianism and all. Even if I have screamed for a single payer insure everyone system for years.

"Corporatism can never reform healthcare, because corporatism is slavery."

Agree. If corporatism were to "reform" healthcare, its sole mission would be to serve corporations, the insurance industry and Big Pharma, not to benefit the people. And it would not be a reform. Additionally, corporatism controls our industrial food supply (which makes people sick and dependent on Big Pharma) and also wants to control and eventually destroy organic foods and non-allopathic medicine (i.e., herbal, homeopathic, etc.) which functions in harmony with nature.

Please show me how Diocletian's impact was far greater for European civilization than the foundations of serfdom.

I say I'm too lazy to google which top ten banks got bailouts and you ask me to explain to you why you're wrong about something you're probably right about? Uh, no.

But while we're making requests of one another, why don't you show me how your post from yeterday's thread wasn't ostentatious in one's learning or overly concerned with minute details or formalisms, esp. in teaching

BTW, do you have the link where Stoneleigh asserted that Diocletian's impact was far greater for European civilization than the foundations of serfdom. Again, I can't be bothered. In fact, you go ahead and have the last word because I'm done. This conversation doesn't matter. The only reason I brought it up was that, not only did your comment seem pedantic, but it seemed rather dickish as well. You're in someone's livingroom. Make your point but be nice about it.

I wanted to congratulate you for having done so much to convince your family that action needed to be taken. It sounds like the whole clan is off to a flying start, which is wonderful news.

I vaguely recall that you asked me a question the other day, but I can't remember what it was I'm afraid. Life has been a bit challenging here recently, with traveling for work, relatives visiting from England and a German exchange student here, so I've probably missed quite a few questions directed at me in the last while. I was supposed to be on vacation, but work got too busy. If anyone asked a question that didn't get an answer, please feel free to ask it again, or to email it to our contact address - theautomaticearth(at)gmail(dot)com.

"In fact, not to reform health-care would be the real insanity from a national economic perspective."

I don't think helping the citizens of this country is what the whole heath care deal is about, the only way the economy can "grow" with our monetary system is if consumers, corporations or the government IS going to take on more debt. The consumers are broke and paying down debt, and as that spending collapses the corporation are not going to be willing to take on more debt either so that only leaves Uncle to go into hock for them. Health care is just a scam to justify government spending so the whole con game can run awhile longer. Just like the bank bailout while throwing Main Street under the bus it looks like that the actual health care of the citizens is way down the list of priorities on this one to me.

First, I wanted to let you and everyone else that I spent an enjoyable afternoon today with our own, highly esteemed "El Gallinazo."

One question I have for you that I posed to him: How do you come up with such drastic numbers as Dow around 1000 by the end of 2010, real estate off 90% or more from its peak, and unemployment at over 50% at its peak?

I am assuming these are a bit more than just very rough ballpark guesses - i.e., they involve a bit more precision and detail in the underlying reasoning than simply saying "things are going to go downhill drastically over the next year or two" - which is about all I could manage to say on my own before I started reading this site.

"You want to keep politics out of monetary policy," Geithner said, adding the Fed already has strong congressional oversight. "The Fed is dramatically more transparent than it was, is subject to very comprehensive oversight and audits, but there are certain things about what the Fed does that again you need to make sure you preserve as independent of political influence, that is free of political influence, and that is a line that we don't want to cross," Geithner said.

Here is a reasonable counter-argument.

Monetary policy is per definition a subset of economic policy.

Economic policy (as executed by the sovereign nation-state) is always a political act.

The Fed cannot execute monetary policy without committing a political act.

That one doesn't even begin to capture how extreme the weather has been. We usually have a mild April and May, warm June, hotter July, and absolutely scorching August and September. We've had at least twice the number of 100 degree plus days this summer that we normally have, and we're not finished by a long shot. The heat and humidity are just, well, oppressive. It's an entirely different scale than past years. Central/South Texas has been in extreme/exceptional drought status for quite some time. The economy's much better here than most places in the US, though, but I think we're just late to the party.

Regarding pharmaceuticals becoming unavailable, could you please describe the scenario as to how this will unfold.I'm having difficulty visualizing how we end up with no pharmaceuticals in the next 5-7 years or so.

I guess the idea of health-care reform gets thrown overboard from the TAE ship if the one doing the tossing is anti-Obama and paints with very pessimistic brush.

Well, think about it. I & S live in Canada, which has a single-payer health system. So, like many other people in the industrialized countries that have the same system, they can only shake their heads in wonder at the stupidity of the American politicians and the voters who put them there.

Why should they be concerned with the American health-care system since it does not affect them one iota?

If you live in the US, do you spend a lot of time worrying about the healthcare decisions made in Italy or New Zealand and how they affect their local citizenry? It won't affect you one whit the next time you see your doctor.

We are not anti-Obama per se, although we do think that anyone from either side who rises through the ranks of American politics does so because they will serve the interests of the corporatocracy, not the little people. Health care reform will serve the big vested interests, notably insurance companies and big pharma. It very expensively does nothing for the people who need healthcare, which is very sad.

Not that I think a single payer system would succeed in that aim either at this point. There is simply too much debt, and not just in the USA. Government spending is going to be slashed in most developed countries once there are many countries trying to borrow enormous sums in the bond market and very few parties willing to lend. All manner of 'scared cows' will be on the chopping block, and we will be well on the way to a pay-as-you-go system. This will obviously be horribly unfair, as far more people than now will have virtually no purchasing power.

This is one reason why we are so concerned with health and fitness here - the fitter you are, the less likely it is that you will need healthcare you won't be able to afford. Accidents and other misfortunes still happen of course, but you can greatly improve you odds of staying healthy. Speaking of which, I'm off to the gym to spend an hour on an elliptical machine :)

You have previously stated that people should secure items that lead to greater self-sufficiency (less reliance on centralized systems) and to do so while international internet shopping/shipping and credit cards still work. But would you agree that items from far away are more likely to be unavailable than those within one's country? The reason I ask is that, if I could never get another item from China, I think I would be A-OK. (Well, I think I might miss tea even though it's probably laced with melamine.) On the other hand, I don't think there's much risk of not getting Alberta's wheat or Manitoba's canola or even Ontario's maple syrup even if it takes a lot longer to get it here by rail rather than truck or air. For that matter, I suspect we'll be able to get fuel for quite some time as it will be more a matter of who has the cash rather than there being an imminent shortage. Now, other things like a British-made soil blocker or an Italian-made tractor are certainly useful items that could become more difficult to acquire although I'm not sure as to why. I mean, letters of credit for shipping might go through another panic but ultimately I suspect useful products will still be shipped internationally even if it is on a smaller scale. And, again, those who have money will get those products.

The internet is almost as important to western economies as the telephone so it seems to me that few expenses will be spared to keep that going although I can definitely see things like youtube going down the tubes as ISPs migrate to bandwidth-based rates. I also think credit systems will go through much upheaval as people default on credit cards but the clients with good credit will still be able to use them for quite some time even if the credit company is in CH 11.

I ask/posit all this in order to get your opinion on how quickly I should attempt to acquire a few more bits and pieces for my future farm.Thanks

Regarding pharmaceuticals becoming unavailable, could you please describe the scenario as to how this will unfold.I'm having difficulty visualizing how we end up with no pharmaceuticals in the next 5-7 years or so.

Drugs will be produced if it is profitable for someone to do so. It will be profitable only if enough people can afford to buy them, and the collapse of the money supply will ensure that this is not the case. Of course government could get into the game, but they are unlikely to do so on a large scale IMO, as they will be trying to deal with so many other high priorities and will have very much lower revenues than presently. The cost of feedstocks could also be higher, at least in real terms.

You have previously stated that people should secure items that lead to greater self-sufficiency (less reliance on centralized systems) and to do so while international internet shopping/shipping and credit cards still work. But would you agree that items from far away are more likely to be unavailable than those within one's country?

Most definitely. Things that can be produced locally (ie local skills and materials) could be available for a long time provided one has the money (a big 'if' for most people). Things produced elsewhere are far less likely to be available due to the collapse of global trade. Things don't move when the money supply collapses and credit notes are no longer available to shippers. We're looking at an economy that is going to seize up like a car run with the oil light on, at least for quite a while. The same thing happened in the 1930s when we had neo-mercantilism and gunboat dilpomacy.

The internet is almost as important to western economies as the telephone so it seems to me that few expenses will be spared to keep that going although I can definitely see things like youtube going down the tubes as ISPs migrate to bandwidth-based rates.

True, but it requires a stable electricity supply, and I worry about that. The power system infrastructure is not in great shape. I also don't think the internet will be accessible to all that many people in the future, as few will be able to afford it.

I also think credit systems will go through much upheaval as people default on credit cards but the clients with good credit will still be able to use them for quite some time even if the credit company is in CH 11.

I think credit withdrawl could happen quite quickly, even for people who currently have quite good credit. We've already seen people who have never missed paying off the balance at the end of each month get their credit limits cut, and expect that sort of thing to pick up once the rally is over.

I ask/posit all this in order to get your opinion on how quickly I should attempt to acquire a few more bits and pieces for my future farm.

I would pick up anything you think is really essential, especially if it isn't particularly expensive. I would also pick up multiple spare parts for anything from abroad. Chainsaw parts and fuel come to mind as being very important for instance, as fuel wood will be a priority. BC will have lots of it thanks to the beetle plague, but it will still need to be cut.

The military is only interested in medicine that might recoop a wounded soldier back into combat or service. If the soldier is wounded beyond being useful to them again, they will be thrown under the bus by being 'discharged' from the service and left for dead at underfunded Veterans Affairs Facilities.

A couple of Vet Hospitals will be maintained as propaganda show cases for enlistment scam operations.

Old useless vets will die of neglect just like the rest of the population.

So I've been coming to grips with a personal migration since I learned more about climate change and came to appreciate peak oil and infinite growth in a finite world late in 2006. I've eliminated my modest debt, got out of MFs, downsized my home last year, am solar drying the yield from the new garden in the backyard here, helped organize and now coordinate a local "climate action group" bringing in speakers every month, etc., etc. I will be seeing my cousin and her top-of-the-MBA-class daughter when they pass through town on a visit from the West Coast next month. Cuz has just forwarded her daughter's good news:

"I just wanted to give you all an update. As you all know I started my career with PwC in hopes of the amazing opportunities they had to offer. Now that I've completed my designation, you could say the doors have opened up for me. PwC has many offices all over the world and is a strong promoter of international opportunities for their employees - so I've taken advantage of that! Over the last couple of months, I've been looking at short-term and long-term secondments to multiple places. This week, I have accepted an offer to go to the Cayman Islands for 2 years! I'm really looking forward to this career opportunity, and of course, the opportunity to lay on the beach, snorkel and explore the Caribbean! So, if any of you plan on vacationing there, let me know!"

Anon 0910 (yesterday's post): The problem is that it isn't just a "disturbed _few_". And, as it becomes more and more evident to more and more people that the resources do not exist to keep everyone alive, please remember that people value their lives and money more than their principles.

Not all but many Mericans, will become monsters when the collapse begins in earnest. The Nazi will have nothing on them. Most will panic and want to become "Good Germans" just to get a meal. As a group, I have no faith in their collective moral integrity. The U.S is a cesspool of cryptofascist-libertarian selfishness and narcissism.

Darwin had their number, red in tooth and claw, and proud as punch of it.

Starcade is an optimist when it comes to the behavior of imperialist populations.

"Chainsaw parts and fuel come to mind as being very important for instance, as fuel wood will be a priority."

Any chainsaw I've encountered runs on gasoline. Even with fuel stabilizers the maximum recommended life of gasoline can't be more than a year or two? I've never heard of a kerosene powered chainsaw. Any fuel chemists or engine experts know how long gasoline can be stockpiled vs kerosene? Can kerosene safely be used in a modern diesel engine?

Also curious to know how many calories expended to cut and section firewood by axe and saw vs calories of heat produced. I think northerners will need to start building caves.

Questions as to availability or affordability of petroleum fuels leads me to wonder if there will be an excess supply of gasoline vs heavier oil products. If the military and bulk transit are given priority, perhaps gasoline will be relatively cheap in comparison. Choosing a gasoline engine vs diesel auto could be a significant decision right now?

“Bloomberg's chart of the day comes courtesy of proud "TARP 4eva" badgeholder Bank Of America. Basically it says to expect another 40% rally in the markets (yes on top of the 50% witnessed already) simply because America is now the same basket case economy that Japan was in the 1990s (and continues to be today), even though as everyone will attest the connection between economic reality and market stupidity ended long ago.” The Meltup Cometh ZeroHedge

I guess I should warn you, if I turn out to be particularly clear, you've probably misunderstood what I've said. - Alan Greenspan

Given Mr. Greenspan's statement on The Economists' Forum (A Response To My Critics, March 2008), bankers apparently have a greater fund of knowledge to draw from than the regulators...

Even with full authority to intervene, it is not credible that regulators would have been able to prevent the subprime debacle. It would have required insights that would enable regulators to override the investment judgments of the most experienced analysts of the private sector, the very people on whom regulators rely for their market insights.

Mr. Greenspan's comments are ironic in a couple of ways. The first and most striking is that himself makes the most important case for transparency...

Soooooo, would making the Fed transparent to the United States Congress make any real difference?

Gasoline for chainsaws will be rationed by the military as a 'national security' matter. In other words, if you're connected or kowtow and suckup enough to them, you get gas. Otherwise, it's a handsaw for you.

I don’t believe the possibility of economic collapse is a reason to not go forward with health-care reform. Health-care reform is not the straw that will break the camels back; it might be the only chance for the camel to survive. And if the camels back turns out to be more resilient that anyone guessed, health-care reform will have been scrapped in a moment of haste, so to speak.

Pass some real meaningful health care reform; if the ship goes down, well it was going down anyway

But it‘s all a moot point. The Dems are going to cave in to the insurance industry and 08 will have been my last cast ballot. I will stand back and watch the weak-knee Dems get voted out of office.

“Even in economies overcoming credit booms, rallies can be powerful and last much longer than you think,” Bank of America’s Sadiq Currimbhoy, Arik Reiss and Jacky Tang wrote. Should the similarity between the U.S. and Japan persist, the S&P 500 will keep rising, partly because of gains in the dollar, the Hong Kong-based strategists said.

LONDON -- The U.S. economy may be showing signs of recovering from the financial crisis, but the jury is still out on the future of the U.S. dollar.

While many analysts expect the dollar to strengthen in coming months as the crisis fades and the U.S. economy turns toward growth, a growing chorus of investors is expressing concern about the longer-term outlook for the greenback.

In a new twist to an old refrain among economists, who have long worried about the effects of growing U.S. debt, they say that the huge liabilities the U.S. is taking on to dig its way out of crisis could ultimately undermine faith in the dollar.

"There has been a lot of disappointment with the way the U.S. credit crisis was handled," says Claire Dissaux, managing director of global economics and strategy for Millennium Global Investments Ltd., a London investment firm specializing in currencies. "The dollar's loss of influence is a steady and long-term trend."

Ran Prieur did some research on chain saws, efficiency, and fuel; scroll down on the page link below to see his reasoning, and a link to expensive alkylate fuel that supposedly lasts a long, long time:

Yes, I posted that WSJ piece on Tuesday. But the dollar going up in a rally is not the issue, the experts have that one wrong, it's about it going up when times get tough, as a flight to safety in the absence of alternatives. During the past 43% rally, as you point out, the dollar has gone down. That should be a strong indicator.

One trick if you have no gas...but still have electricity...A "sawzall"and or circular saw will work in combination with splitting mall and wedge[was stuck at a fireplace-heated house w/no chainsaw once]....be very VERY careful.

That picture could have been my grandmother Anna.At 93,she still has all here wits about her,and still is showing me canning tricks.In the next few days I will try once again to learn how to make her green tomato relish that I so love.

Today's further exposition of the "fantasy" economy that we are to believe in ,is proof the end will be sooner than any of us (besides starcade)believe.

A excellent point was made by whoever noticed that "The bankers"economy was made "well" by injections of most of our future...the rest of things...well..."We just don't have enough for everyone,and since we decide who gets the free ride ,adios MoFo,,,,don't let the door hit you on the way out"...

There is not the rage I beheld during the bailout...just a sullen 'tude that hangs over most places where working folk rest and try to drink away reality....lots of people are real quiet,and real scared.The talk is in whispers,but with the fierce desperate urgency of over due house payments ,sick kids,and endless stories of lost jobs, canceled contracts,no insurance...and more and more..no hope.Just the sad ,quiet refrain heard over and over"What are we going to do?"

One of our previous posts pointed out it was as if O-man BELIEVES the bullshit that he has been hearing from all of his advisers...as well as all the meetings with those high officials who pleaded their case...that the banks and the wealthy MUST be made whole...or the world would collapse.

They have convinced him of the righteousness of their cause,and so,he has been their,and wallstreets,willing puppet,doing things that bend the bar of we here at TAE consider rational behavior into a pretzel.

I wonder if he will ever have an epiphany,and realize just how much he has been used by TPTB before the mob takes him.The way is clear..he is a "sacrificial"type,I think,and I am sure at some point he will thrown to the wolves as a treat to keep "them"outside the gates...

You can see it,and feel it in so many ways now.The system that kept so many fed and sheltered ,and with a little money for beer and toys is GONE.And there is nothing to replace it.The .gov is frozen ,unable to act due to ideologues who will do every thing in their power to stop any meaningful action by this administration .And the O-man continues on,bringing a pillow to a gunfight

Rant "off"

Time for sleep...I want no dreams this night.The dark clouds I have seen from this point would lead me to places I don't even want to see in my imagination

RE: Rapier & Corporations as the dominant economic actor/social organism in the world these days.

Your post indicated that you were toying with the idea of corporations as the dominant driver in the modern world, and I wanted to offer my 2¢, but I arrived a day late, so here is mt belated reply:

I agree that corporations have captured market share in the market and in the political arena. They control, in a weak sense, the politics of nations and the international organizations like the WTO. In a weak sense because they only influence decisions that effect their interests and not broader issues that they are unconcerned with.

That is because corporations are not a 'team' like the Soviets or the Catholics are team with a leader and an all encompassing agenda. Corporations are a 'way' like Buddhism or the scientific method. The difference is that 'teams' have a complete worldview as a primary agenda with specific targets or actions items to accomplish on the path to realizing their worldview. Where 'ways' have specific targets or action items as primary agendas that when realized result in a worldview that they never anticipated.

The distinction is somewhat circular as the total control 'team' leads to double think while the double think 'way' leads to 1984.

"Even in economies overcoming credit booms, rallies can be powerful and last much longer than you think,” Bank of America’s Sadiq Currimbhoy, Arik Reiss and Jacky Tang wrote. Should the similarity between the U.S. and Japan persist, the S&P 500 will keep rising, partly because of gains in the dollar, the Hong Kong-based strategists said."

Gains in the Dollar!?!??!

What dope are you Smoking?!?!?

As Ilargi pointed out, the dollar has been falling during the stockmarket rally. As the stockmarket rally comes to an end we should see a resurgence in the dollar on a flight to safety. Such moves always look the least likely just before they happen, which is part of the herding response.

When a trend has continued for a long time, it becomes received wisdom, and questioning it begins to sound like heresy. At that point, the trend has gone about as far as it can go. IMO we are approaching that point now.

I disagree with the report you quoted to the extent that they said a rising dollar would be good for the stockmarket. A rising dollar has no effect on the stock market at all. The ebb and flow of confidence, resulting from shifts in social mood, drives both, but in opposite directions.

I wonder if he will ever have an epiphany,and realize just how much he has been used by TPTB before the mob takes him.The way is clear..he is a "sacrificial"type,I think,and I am sure at some point he will thrown to the wolves as a treat to keep "them"outside the gates...

You can see it,and feel it in so many ways now.The system that kept so many fed and sheltered ,and with a little money for beer and toys is GONE.And there is nothing to replace it.The .gov is frozen ,unable to act due to ideologues who will do every thing in their power to stop any meaningful action by this administration .And the O-man continues on,bringing a pillow to a gunfight

Very well put. Obama will be the fall-guy, and the consequences of that will be very unpleasant. I think he really believes that he can fix things by bailing out wealthy bankers. This is the worst kind of hubris - very little understanding and a large dose of arrogance as to one's own abilities. I don't think he has any idea what's coming. It wouldn't be in the interests of those whispering in his ear for him to understand the fate that awaits him (and would have awaited anyone in his position at this time).

As the stockmarket rally comes to an end we should see a resurgence in the dollar on a flight to safety. Such moves always look the least likely just before they happen, which is part of the herding response.

That would be true if the current inverse relationship between the dollar and the US market continues.

However, if at the same time that the market is plummeting, Treasury continues dumping tens/hundreds of billions onto the bond market each week . . . what happens when the bond market says "enough!"? What happens if demand for treasuries hits the wall?

I also use the same machine, and for the same amount of time, even though it bores me out of my mind. But music can ease the boredom, along with that brief five-minute interlude when God’s gift to women makes his grand entrance parade of adoration down the main gym aisle. Lifting his sunglasses, and rippling his barbed-wire bicep tattoo as he does so, each passing member of the opposite sex is treated to a moment of gazing deeply into his dazzling eyes. And then there’s the menopausal woman on the bike in the corner, with a fan set up no more than a foot away from her face. God bless her soul, she is obviously feeling it, but she keeps on working. And the gym almost never fails to provide the highlight of my day--leaving the place.

Anyway, I suppose staying fit will be a bonus should things deteriorate to the point you’re suggesting; although, overuse injuries sure can throw a monkey wrench into the equation. At that point, the attempt to stay fit would become self-defeating given the possibility of limited medical access. If it comes to pass in severe form, I suspect a Depression type scenario will slim down large segments of the population as one does not typically see a lot of obese types in the old photos of the Depression era.

Unlikely. Money will initially flee from stocks to bonds in the same flight to safety that will boost the dollar. You need to look at the "bond market" as a global phenomenon across all levels of governments and corporations, all of which will try to sell debt in unprecedented amounts. The first phase will be a battle fought with rising interest rates.

That was clear to anyone paying attention before he even won an election where the was no way he could lose and the passing of the bailout, he was set up to take the fall and took it willingly.

Clinton left Bush with a mess and Bush left the O-man with a mess, the Oh-man will be the guy that gets eaten if he can't figure out a way to kick the can down the road past 2012 which is as far as he is looking in the future, the same as all politicians which is the next election.

The talk is in whispers,but with the fierce desperate urgency of over due house payments ,sick kids,and endless stories of lost jobs, canceled contracts,no insurance...and more and more..no hope.Just the sad ,quiet refrain heard over and over"What are we going to do?"

Snuffy, you've mentioned before all the things you've done to prepare you and your family, from bees to bullets. I know you're anticipating or, at least, prepared for violence. But what if it's just a matter of you going into town for a beer and someone you've known for a long time - good guy, always worked hard, lost his job last year, not enough odd jobs to pay the mortgage, will lose the house in a couple of weeks - asks you for help, knowing what you've done and what you've got? And let's suppose you've got some land and 'guest' structures already available and some work (there's always extra work) so that this first family has a place to go. What about the next family?

Not that I'm in your position but I hope to have a more self-sufficient place some day soon. And when Canada resumes its decline, there will be a lot of catching up to do. There may be a lot of people with nowhere to go and nothing to do, in short order. Having the means to live somewhat independently has obvious advantages but some less obvious disadvantages. Any thoughts?

The drop in income is from a big high the year before, so the actual drop compared to what farmers are used to is not quite so big. BUT- farmers being people, many of them were sure that high prices for corn etc would only go higher, from now on: and planned accordingly. The expanded, bought new equipment- etc. So their necks are stuck out much further than they would have been otherwise.

And; the dairy industry in this country is in desperate trouble. Desperate- is not hyperbole here. They are losing money on every pint of milk they sell, and have been for months- and they have no reserves to fall back on. They are going to have to shut down a lot of farms and production. There have already been mass milk dumping events- which the MSM has not covered, I think; just the farm media.------------------

On another subject- I was at the dentist yesterday, and was informed that my coverage would not, in fact, cover the two $800 crowns I need.

So, I asked her; "How about barter?"

She gave me a negative shake, and highly sceptical answer, but then asked "What have you got?"

Stoneleigh: "Obama will be the fall-guy... I don't think he has any idea what's coming."

I'd be rather surprised if he's that clueless. I went to school with him.

:-) Ok, I didn't. But I went to the same school- Punahou, in Hawaii; some years before he got there.

It's a VERY unusual school; founded by missionaries, taken over by their wealthy offspring, then eventually opened up to all the non-white folks so prevalent in Hawaii. Usually you start learning languages in kindergarten, and continue through grade 12; your choice of Latin, French, German, Spanish, Mandarin, Japanese, and a couple more I think. The French I took in my one year there screwed me up forever- whichever school I attended next (dad in military, remember) I was years ahead of everyone else.

As a result; in my class, we had scions of the ruling elite- A Dole, a Dillingham, and a Parker (and certainly more I don't recall, cousins with other names) but my best friend was named Akiona, and his family was far down the "lower middle class" ladder; as were a great many more of my classmates.

At that age, and at that time, we were truly oblivious to any elite/non-elite distinctions. We knew the money differences were there, but as far as I could tell, didn't care; and talked about it- the kids of course parroting their parents' outlook.

It was highly educational.

As a half-black kid; Obama would have been at the very bottom of the racial prejudice scale. That was inescapable of course; though the majority of kids really were at least superficially non-racist. It only takes one asshole from 4 grades higher than you calling you names for the hurts to be permanently installed.

I guess I just really can't imagine him going through that system, and coming out blind. Smart; yes. Also capable of keeping your real feelings very well hidden.

The "thing" I'm having the most difficulty in articulating---to friends, colleagues, folks with whom I work in town government, the average due or dudette on the street---is this:

1. We have reached the point of no return vis-a-vis DEBT. No amount of even the most honest capital production could bring us back to some reasonable semblance of balance. Between decades of fraud in the derivatives and securities and housing and CRE marketplaces, we're talking hundreds of TRILLIONS in debt.

2. YES, the government can kick-the-can down the road for a time through the 'creative' employment of monetary policy...but all this does in THE REAL WORLD of mathematics is add more unservicebale debt to the system.

3. Eventually ALL fiat currencies collapse because trust in their value disappears.

4. We are beginning to see evidence of this based upon the fact that securing PHYSICAL GOLD is becoming increasingly difficult---at any price. (I'm not promoting gold or a gold standard in this post---I am only stating a FACT: the unavailability of REAL gold is acting like an early-warning system for the collapse of FIAT dollars)

5. A double or even triple dip recession over the next several years---and then when all of the bullets are emptied from the FED's suicidal revolver---total collapse.

by the way---did you ever notice that RECESSION + DEPRESSION = REPRESSION.

You should read that article:‘Geithner: US Fed needs shielding from politics.’It is quite insightful.In said article, he completely confounds the concepts of law and politics beyond any reasonable measure.

Geithner seems to adhere to the monetary ideology that "policy" as determined by the Federal Reserveshould not be influenced by "politics" as determined by the incidental agenda of the elective polyarchy, who operate through a biased polical spectrum, are unnecessarily argumentative, and are driven by the financial illiteracy and disinformed opinions of the electorate.

Thus, policy concerning the minor manipulations of the monetary tensor-field should naturally be determined by the constructive, focused and benevolent agenda of selected private interests, without being influenced and harassed by the disruptive contradictory agendas of political parties and their public interests.

Policy should be conducted through a rationally responsible mathematical model utilising monetary valuations that are not moral arguments, administered by the a-political agents and employees of the Fed. Policy might also be indirectly influenced by those private stockholders who are completely disinterested in politics, to whom the Fed is legally obliged to pay dividend on its private operations which must not be public, rather than on its public operations which cannot be private.

Geithner addresses the issue of accountability:"Every day, every hour people can judge for themselves whether the Fed is doing what it's supposed to do under the laws of the land"

The notion of passing judgment on the results of Fed policy is meaningless without the political capacity of modifying law to influence policy.Geithner is saying that people are allowed to have opinions on monetary policy, as long as they do not influence policy through political means, even though Fed policy influences them.

A political party-system in this context must act as mediator between the citizens and the governing body of law, whereby the law functions as the recursive force-carrier between the citizenry and the state, and between citizen-consumers and corporate entities, between institutional citizen-consumers, corporate consumer-consumers and the state, and between corporate corpses and their consumersand the corpse of the state.

Because the electorate of the citizenry can only reasonably influence and manipulate those laws which govern the Fed through a process of politics, if the monetary policy of the Fed should be placed above all politics, it must be placed above the awfull influence of the electorate entirely.

In this way, the legal and political representation of the citizenry is displaced. The social and constitutional mediation between citizens and their elected government concerning a vital subset of economic policy (maintaining the stability and validity of monetary exchange, and by extension the multivariant value of all property and labor), is transmuted into a continuous(ly broken) promise or pledge by a private entity in a structurally dilated medium of monetary representation which bears no inherent accountability in the political party-system.

I guess I just really can't imagine him going through that system, and coming out blind. Smart; yes. Also capable of keeping your real feelings very well hidden.

Regarding Obama: At Punahou he was forming tactics, strategies, world views, and ambitions. What helps someone with such a background succeed in mainstream society so well? He didn’t threaten authority—his goals complemented authority’s goals.

My guess is that he’s blind because he’s succeeded at playing to authority from very early on. It’s a little like my wife’s favorite saying: “Be careful what you wish for because you may get it.” When a person is successful at achieving early goals, it often means immature worldviews are not yet forged into clearer perceptions. What’s gone into forming the perceptions of those on this blog? Every single person I knew in college was blinded by their later “success.” IMO, Obama’s real education is still ahead of him.

He reminds me a little of Emmanuel Rath in Josef von Sternberg’s 1930 movie, The Blue Angel. He’s a smart man seduced by the unbelievably beguiling power of Marlene Dietrich. Few men can resist the seduction of powerful success. He will fall far.

There is another chart floating around that seems more credible for an analog (to the extent that is possible).It asserts that we are somewhere between the two peaks that occur after the low in the NKY on 8/14/92. According to this chart, there should be a decline coming soon.

dan w - good for you to keep trying. I can't get anyone to understand that the market is getting ready for a long downward dive. I've been told I talk like a meteor is going to hit, and that's not going to happen.

I'm painting this masterpiece in the broadest of strokes. While we will, IMO, experience many ups and downs over the coming years---yes, YEARS---the demise of the world's FIAT currencies---that is, the demise of the world economy---is assured. In simple math...we cannot experience growth---a predicate for order and stability---without reconstituting the system of credit & debt...BUT, the shear volume of DEBT prohibits the long-term reconstitution of the very system that we "need" in order to maintain world political stability, etc.

When the "world" catches on to this---which one by one it will---ALL FIAT CURRENCIES WILL SUMMARILY COLLAPSE...AND IT WILL BE DRAMATIC AND FAST AND DUCK AND COVER MAN!!!!!!!!!!

Well, if Obama is as intelligent as you think he is (having gone through your "very unusual" high school) then why isn't he doing anything? If he sees what's coming then why hasn't he made at least an attempt to change course (politically, financially, or socially)?

During the election I was not one of his supporters. I didn't subscribe to the collective Obama hysteria re: hope and change. The man is about as un-radical, middle of the road, conservative-center as you can get. He's fairly predictable, too. If you want to know what Obama's stance is on anything just ask yourself "what would the financial lords of the universe do?" He'll do the same. He's wedded to the corporate mindset. Not that most politicians in America aren't, but as I say, what's so different about Obama?

I agree with Stoneleigh, he'll be the fall guy, arrogant and clueless to the end.

Oddly enough,I have been very close to the situation you describe,Farmerod.That particular situation resolved itself before it was necessary to take action...but believe me...I have played that scene over and over in my head more times than I can count,for a reason.The reason is I like to think of myself as a moral "good"person.I also know that the times we are headed into will force people to make decisions.Sometimes there is no "good" choice.There is going to be times when I may have to make a conscious decision weather or not another person survives...at the risk the long term viability of my own families/clans existence..... This can be a time for pettiness and greed...or a time to be noble ,but in all cases it will be a time that one will have to use all the wisdom that you have collected over the years to try and make the "right"decision

I am fortunate that I have pretty good "security"...in that few have been to my home...and fewer know what steps I have taken to insure sound sleep. [ Note: The place I was describing is a small,well kept cafe/restaurant/bar 10 miles from home.Its the best eatery locally,and it easy to get a feel for the whole area there.I used to think of it a a cheery ,fun place but lately...its become grim ...quiet,and 50% of the normal business.]

One of the biggest disagreements I have with wifey is the amount of food to store.We are well stocked for 5-6 for 6 months.I am of the mind to go hardcore very soon and raise that to 10 for a year...by purchasing a ton or 2 of wheat [soft white winter]I can get for $200.Bottom line for chicken...if "stuff" happens for people.I dont want to get caught with my pants down if we go into a "fast crash" and I have a crew to feed.Till first harvest it could get ugly...

beans,rice,wheat,barley.salt,sugar.Lots and lots of 5 gallon pails make me sleep easier.The more I have ,the easier time I would have to share.This "solo survivalist"or "me and my family against the world"mindset is bull.A clan of 2-3 families is 10 time stronger than 1,just like 2 men can complete 3x the work 3 single men can.By the time my brothers crew,my wifes crew and a few strays show up 10 might be conservative....

John Hemingway- "Well, if Obama is as intelligent as you think he is (having gone through your "very unusual" high school) then why isn't he doing anything?"

Sorry, I was assuming everyone knew about my thoughts there; I've put them up here several times, and do not wish to be annoying about it. You can check back there for my full hypotheses.

Basically then "Gorbachev and rope" hypothesis is that he is very carefully consolidating power, until he actually has control. No new president, certainly not a maverick/freak politician like him, actually has power in the early days. Long conversation.

Actually, so far, all his actions are consistent with this, which is, I freely admit, a long shot. But remember- Gorbachev was a huge surprise to everybody in the USSR, too. And Barry had that quite stunning example to follow.

@ Greenpa,OK, you see him as a long shot Gorbachev, fair enough. But how is capitulating to the Republican party (which was, btw, convincingly defeated in the last election) and the corporations wherever possible "consolidating his power"? I'd say, if anything, he is doing one hell of a job of consolidating "their power", "for them".

I never thought that he was a closet Lenin, or even a closet Ted Kennedy, but Obama is turning out to be an even greater lackey than Bill Clinton was, and that is no small feat.

“Chief Judge Loretta Preska of the U.S. District Court in Manhattan stayed her August 24 order in favor of Bloomberg News, which had sought the information under the federal Freedom of Information Act, so that the central bank could appeal.”Judge puts Fed's bailout revelations on hold

One simple chart showing total money (M3 + credit + gov't debt, per the basic definition of money as a medium of exchange (credit cards or credit in general and gov't debt can actually buy things [duh])) since 1915 - the basic proof that real deflation like the Great Depression isn't even close.Just say no to deflation... NowandFutures

John Hemingway- "But how is capitulating to the Republican party (which was, btw, convincingly defeated in the last election) and the corporations wherever possible "consolidating his power"? "

That's the "rope" part of it. If- big if-he were attempting a Gorby; he will need to discredit the banksters. This is a much more difficult thing in the US than Gorbachev's task, which was discrediting Soviet "communism". As we've proven repeatedly, half the US consists of persons who truly believe if you make the rich richer, it will be wonderful for those in the trailer park- and that belief is logic-proof.

In order to actually take power from the banksters; it would be necessary to let them fail- hugely. Right now; indeed, he's giving them everything they want; bailouts, no real supervision, all their people in the positions as advisors to the government, and most obscurely the cherished fantasy that "talking hope" brings upward movement in the economy and "talking doom" brings failure. All the MSM is putting maximum positive spin on everything right now.

I expect any day to see "Massive volcanic eruptions around entire Pacific Ring of Fire- further proof the recession is ending!"

As we know- none of this is going to save them (or us). They are going to crash; very hard- and maybe this time they will not be able to say "it all would have worked if only the damned government had followed our advice!" He IS following their advice- and it's going to be very obvious to anyone not actually decerebrate that none of their advice was worth a pimple on a gnat's ass.

This gets to be a very long discussion; don't really want to get into it, and don't really have the time- just saying-

Maybe. Match his individual actions up against this hypothesis. I think he does try to take sensible actions when he can- without harming the necessary long term discrediting, for all time, of the insane greed and growth capitalism we've been following for so long.

That our Prince of Hope is leading the USA to Hell on a handcart is true enough. That he's actually consciously doing this I think is just a bit far fetched, don't you? They way you describe him he sounds more like a budding Black Panther than the young figurehead of our corporate oligarchy. Still, you made me laugh:-)

"LOS ANGELES, Aug 29 (Reuters) - A wildfire in the mountains north of Los Angeles has quadrupled in size since Friday, threatening communication transmitters and leading to a call on Saturday for more homes to be evacuated."

"Few men can resist the seduction of powerful success. He will fall far."

Yes, he will fall far because his worldly ambitions led him to become a voice for the powerful, not for the lowly as he falsely claimed. Obama has betrayed his supporters and, more importantly, he has betrayed the long suffering African-Americans and other minorities in the USA who overwhelmingly supported his campaign. The many who thought his eloquent words were genuine will be deeply hurt when they finally realize that he is a fake.

BTW, I voted for Obama and months ago experienced moments of delusional hope when he moved me with his eloquent words despite my being aware of his voting record and the inevitability of his being unable to challenge the ubiquitous corporatocracy -- if he did not realize this from the beginning. When I hear Obama speak nowadays, though, his words sound empty, robotic and full of deceit.

One simple chart showing total money (M3 + credit + gov't debt, per the basic definition of money as a medium of exchange (credit cards or credit in general and gov't debt can actually buy things [duh])) since 1915 - the basic proof that real deflation like the Great Depression isn't even close."

Well, M3 hardly rises these days, says shadowstats. Credit is plummeting, obviously. And what's left then is government debt, which consists mainly of "money" that sits in deposit accounts with the Fed waiting for the next round of losses and writedowns, instead of entering the economy to "actually buy things".

A strange graph, and a strange way overall to try and prove something.

"asks you for help, knowing what you've done and what you've got? And let's suppose you've got some land and 'guest' structures already available and some work (there's always extra work) so that this first family has a place to go. What about the next family?"

(1) It is probably a good idea to keep some of your preparations and plans to yourself, even from some family members depending on your situation.

(2) Probably a bad idea to discuss these issues with co-workers or your boss. (One exception I make is to always torment twenty-something temp employess with the full-blown zombie-apocalypse. They end up thinking I'm nuts, but at least they won't be totally surprised later if the worst case scenario becomes reality;)

(3) I do actually have just such a guest house that you suggest for 2 purposes (a) I believe home fire insurance will become a rarity, to say the least, and would like to have an alternative place to live if a fire destroys my main house. Also have double copies of important documents and supplies split between the two buildings. (b) The second house serves as a place desperate relatives could inhabit if necessary. I had originally intended it as a summer guest house for visiting relatives. You could turn a large 2 car garage into an emergency structure without interference from planners or taxman if you are deceptive about it.

There is no doubt that the US has power, that the banksters and politicos hold the reigns of power. Consequently Cdns and other nations keep a close eye on US affairs. So far it is not an inspiring or hopeful situation. I,personally, have withdrawn my energy from political parties/electioneering. I have come to share Stoneleigh's previously expressed opinion that politics is prole feed. I no longer have any hope or expectation that world gov'ts will serve the needs of citizens. This is a huge shift in thinking as one who has been an active participant in democracy. Whenever I hear " democracy " roll of the tongues of the ruling class I feel nervous and wonder what dark deed they are up to now. Look at the judge staying the decision to look at the Fed's books. That should make anyone who thinks there is a political solution sit up and think again!

Having the means to live somewhat independently has obvious advantages but some less obvious disadvantages. Any thoughts?

We live as community and we die in community. As you know, the lone wolf survivor is a myth. But what is surviving? Of course we put down sociopaths and jackels--they have no part in community. But we also sacrifice ourselves for those we love. Most people I meet understand this at some level--it's been my experience that most will take a bullet if they believe it will help what they value most. This is how community is possible at all.

Once we separate from community, we become jackels. If community is not valued as much as family, family will die. No one survives a vacuum. The food you're called to give is the food you may receive. If/when the situation becomes so bad that it seems an either/or situation--family or community--what stories do you want to leave the children? The stories of our parents are the foundations of our lives, good or bad. Is the goal community or ferality? What difference if we live a month or a hundred years? We all live an infintesimal moment in an infintesimal place. In other words, what is the value we're prepared to live for?

I've been struggling to keep up since we've had a major distraction this week - the birth of a daughter, our second child. I'm an old dad.

frac said:

"Also curious to know how many calories expended to cut and section firewood by axe and saw vs calories of heat produced. I think northerners will need to start building caves."

I came from a small village high in the boreal forest where we had no plumbing, no telephones, no road access in spring and fall, and temperatures of -50F in the winter. This was pre-chainsaw days and the homes were heated with wood stoves. There was always a big pile of split firewood at each house by fall, all of it cut with Swede saws and split by hand. Nobody lived in a cave as far as I can remember.

An older relative said in the 1930's, he and his cousin, both in their early twenties, would cut and split 18 cords of wood (working 12 hour days) in about two and a half weeks using an axe and two man saw.

One of the tricks was to pick the trees out of the wood lot two years in advance. They would kill the trees they picked in advance by girding off a band of bark an inch or two wide. When it came time to cut them two years later, most of the tree had dried 'on the stump'.

This did a couple things. The wood was almost ready to burn, it had time to dry out some on the stump for two years.

Dragging it out of the woods was easier on the horse. A full wet chord of oak was about 5,700 lbs.

A dry chord of oak is about 3900 lbs.

That's 1800 lbs of water, per chord you don't have to lug out of the woods and the horse doesn't need to pull.

In addition, if you sled it out snow, it is much easier for the horse to pull on top of the weight less the water.

Ten chords minus 1800 lbs of water per chord is 18,000 lbs you don't expend any energy extra for transporting it.

I came from a small village high in the boreal forest where we had no plumbing, no telephones, no road access in spring and fall, and temperatures of -50F in the winter. This was pre-chainsaw days and the homes were heated with wood stoves. There was always a big pile of split firewood at each house by fall, all of it cut with Swede saws and split by hand. Nobody lived in a cave as far as I can remember.

Stoneleigh has often argued that financial news converage lags behind turning points in financial markets. News is most depressing just when the market is about to turn, and most optimistic when the market has peaked. I decided to read through some of my archived news articles from the past 6 months in search of evidence to support her idea.---------------------------------

From the NYTimes, March 1, 2009:"Fears that the world’s economies are even weaker than had been thought ricocheted around the globe on Monday as investors from Hong Kong to London to New York bailed out of stocks.....For now, at least, few investors expect any such good news. The S.&. P 500 fell 18.6 percent in the first two months of 2009, even before Monday’s fall. That was its worst start, exceeding the 18.2 percent fall recorded in the first two months of 1933" ----------------My comment: Note that the article states "few investors expect any such good news." In reality, one of the largest stock market rallies in history was poised to launch only a few days after this article was written.-----------------From the Financial Times, May 17th:"Barclays Capital has revealed that just 17.5 per cent of the 605 investors interviewed for its quarterly FX investor sentiment survey – including central banks, asset managers, hedge funds and international corporate customers – think risky assets have further to rise. This is one aspect of a generally gloomy outlook for the global economy, which undermines optimism that “green shoots” of recovery are starting to emerge."---------------My comment: By May 17th, the stock market had risen 31% off its March bottom. Yet, as the article above indicates, many Bears persisted. Only 17.5% of investors suspected the market could rally any further. In reality, the market has rallied 16.8% higher since May 17th. Clearly, pessimism had not yet been sufficiently purged from the system.---------------From the NYTimes, August 9th:"the evidence is now pointing pretty strongly in one direction: history books may conclude that the financial crisis of 2008 turned out to be far less bad than it could have been and that Washington deserved much of the credit.......Just look at the record. Washington may be in the process of proving that it can halt an economic crisis."--------------My comment: Sounds like folks are getting a bit delusional to me. -----------------From Mish, August 26th (finally adding a bit of sanity to the mix):"Last week the Daily Sentiment Index hit a new high of 88% bulls. The last time this level was hit was in October 2007"--------------My comment: 88% bulls suggests we're pretty close to the top. Perhaps. Or perhaps another 11% needs to be added to the bull corner before its time to flip back the other way. Time will tell. Nevertheless, it fascinating to witness such a dramatic evolution of conventional wisdom over a mere 6 months.

Photographs of my Great-Grandparents from the early 1900s show a mountainous woodpile by one of their barns. I often wondered who built that pile after all their children moved to the cities around Boston. They were late middle aged in this photo.

I cut some wood by hand for supplementary heating (frequent winter power outages) Mostly this is an excuse to get out into the woods in the winter. I don't usually cut trees over 12 inches diameter. Felling the tree with axe or saw is not difficult, but limbing and sectioning without power tools is extremely time consuming. I leave the fallen logs for a year or two before sectioning and removing by cart. I would not be able to do this with hand tools if I had to rely on this wood for all my heating requirements. Most of the neighbours who heat with wood have 4 foot sections delivered and then cut it to size with power saws and splitters.

@Dr J Did your community import food from the south at that time? And how was the wood transported from the woodlot?

@DavidMy woodlot begins about 1/4 mile to the south of my house and continues another mile or so. If I had to transport wood from the far end of the lot I would need machinery or a horse.We do not have the same infrastructure people had in those days, even if we can replicate their tool collection.

arthur-itic - food was stocked from the south. Canned goods and dried staples, mostly. A lot of food also came from the land - moose, elk, deer. People drove pick-up trucks but I remember the drinking water was delivered by horse-drawn wagon. He would walk the horse out into the river and use a bucket to fill 45 gal barrels in the wagon, then make the rounds to each household. I was very young so I don't recall in detail how the wood was delivered. I suspect the wood was originally hauled by horse and wagon and then by truck as vehicles became more common.

I have been doing a daily routine for well over 30 years now, so no sense in given up the misery factor at this point in life. All kidding aside, exercise gives back more than it takes and that is why I do it. But your point about enjoying what you do is well taken.

All this ‘Chop Wood, Carry Water’ talk is putting me in the mood for a “ Young Abe Lincoln Was A Tall Tall Man” CD.

As an ex-chimneysweep I should point out many wood heat novices are going to burn down their dwellings. During the 1970’s more Americans began burning wood and never cleaned their chimneys. They burned unseasoned green wood or over stoked their stoves; don’t do either of those and do clean out your flues.

I moved on to a 100 acre abandoned farm/woodlot property in Nova Scotia in 1980, and the next year I disassembled the house that had stood there for about 100 years. It was a 1.5 story 18' x 24' saltbox, with a summer kitchen and front porch added on. The exterior walls consisted of clapboards, tarpaper, sheathing boards, horsehair-and-split lath plaster inside the walls for warmth, then plaster on the inside walls, then wallpaper. No other insulation. I expect that it was very cold.

My neighbour, who grew up in the house, said that in many winters they did not have enough firewood laid in so the men would cut a few Grey Birch stems and bring them out with the horse on the last trip out for the day. After supper the boys would brush the snow off them, chunk them up, split them, and put them in the woodbox. Grey birch will burn when freshly cut if the fire is kept roaring.

He said that the house was always cold in winter when the fire was not going.

I built a new house the same size, but it is well insulated with good windows, and I burn 2 cords of wood per year, mostly grey birch cut in the woodlot, but seasoned for a summer. I use a chainsaw but I expect that I could bring in my wood with a crosscut saw and axe, and wheelbarrow if I had to, but I think that there are rooms I would not heat.

The big old houses were cold because they were drafty and not well insulated.

“The housing market appears to have put in a longer-term bottom when it comes to sales and a longer-term top when it comes to inventory. Prices? Not so much, at least not yet.

As for any recovery, don’t expect a rip-roaring rebound. This is going to be more of a gradual process that will take a long time, kind of like turning a battleship.”Housing Market Stabilization on Track Money & Markets

As South Florida mentioned in the last 24 hours, I have been in the greater Miami area ( I think that is an oxymoron ) and we met and had a nice interaction. Couple of things came out of it.

1) He has constructed a Word doc ( 1.5 MB ) which attempted to contain all of Stoneleigh’s market predictions. I have just opened the first page and the first S comment is dated Jan 23, 2008. I don’t have a web page and I am not about to attempt to construct one in the final leg of my move to Latin America, but one TAEer, I forgot who, put the earlier compilation of Stoneleigh comments up for download on his page, and perhaps he would contact me to do another one. I am back on STJ living in a cabin for perhaps the next week or so, and it doesn’t have wi fi, though I can get it by walking to a deck on the same property about 45 seconds away. As mentioned, I have only reviewed the first page, but I have every reason to believe that it is quite well constructed. South Florida is a college level academic.

2) Also, I have left my contact service languish, the one with registrations. The way it works is that you email me either with a post or simply a message that you would like to contact so and so. If SAS is registered, then I simply forward the message and SAS has the choice of responding or not. If SAS chooses not to respond, then the OP doesn’t get his email. The whole purpose of this mini-project was to construct a way for TAE community to contact each other without having to put their e-addresses on the Web. I brought this up because South Florida wanted to contact Ed Gorey, who is not registered.

My address is hpaulfuchs at gmail, a commercial company.

Also Mad Max interviews Mish this week on his On the Edge, parts two and three. Part two is old hat for TAEers where Mish defines the real meaning of inflation and deflation. Part three covers somewhat newer ground as it discussed the Bloomberg court ruling and bank insolvency. There was a little bit of a debate between Max and Mish regarding Bernanke’s motivations. Mish thinks he is a well intentioned idiot. Max thinks he is a quite conscious criminal. Max wants the state of New York to release John Gotti so he could be appointed as Chairman of the Fed. He wants real two fisted killer criminals in charge instead of these nambi pambi boys like Bernanke and Geithner.

I await your move to the southern continent and on the ground news from there. Perhaps when you are visiting the potato areas we could arrange that you send me some stock.Or -- when you are in any of the hotter southern hemisphere climes you might mail me some rare fruit seeds. You have my email and when you are settled, let's talk. I'm puzzled why you are yet returned to St. John's but no doubt I failed to pay attention at some point. Congratulations on the two steps forward.

As a "northerner" living on the prairie-- I stare up puzzled at my tall house (close to 40 feet- 15 foot high attic alone!!). It's the tallest thing on the landscape next to the silos.

Why.. why.. why would people build houses this tall out in the middle of the prairie? Tornadoes, -60 degree F chills that can last for days. Not practical. But it is the infrastructure we are left with.

Maybe it was an over reaction to coming out of the sod homes they settled into. I'm all for building into the ground. Just wish I had the resources for a "do-over" for our farmhouse.

LOS ANGELES, Aug 30 (Reuters) - In the battle of horror franchises, "The Final Destination" scared off a challenge from "Halloween II" to claim top honors at the weekend box office in North America, according to studio estimates issued on Sunday.

"The Final Destination" sold $28.3 million worth of tickets during its first three days, while the latest "Halloween" outing of masked serial killer Michael Myers opened at No. 3 with $17.4 million.

In between was last weekend's champion, Quentin Tarantino's violent World War Two movie "Inglourious Basterds," with $20 million in it second round. With yet another horror film, "District 9," claiming the No. 4 spot with $10.7 million in its third weekend, movie theaters were no place for the squeamish or intellectually curious.http://tinyurl.com/lkrsay

Fits in nicely with Prechter's socionomics reflecting the social mood during bad times.

"CNN With winds of 115 mph, Hurricane Jimena has Mexico's Baja California peninsula in its sights. The Category 3 storm is expected to to moved toward Baja California, according to the National Hurricane Center. The hurricane could bring some much-needed rain to southern California, where wildfires have scorched thousands of acres"

by golly, thank goodness for them Category 3 storms! Just like Katrina!

U.S. banks face a tsunami of home foreclosures soon, says David Karsbol, chief economist at Saxo Bank. Homeowners may be faced with no choice and will just stop paying their mortgages, he warns. “I believe we are about to see a tsunami of foreclosures in the U.S. A lot of homes have been held back because if the banks are foreclosing on them they will have to do a writedown on the mortgages they have on their balance (sheets),” Karsbol told CNBC.

“That’s why they have been reluctant to do so.”

Soon homeowners may be looking around their neighborhoods and realizing that their neighbors have opted to stop paying their mortgages and are living scot free, he said.

“The fact that many homeowners are allowed to stay in their houses without paying on their mortgages begs the question: Why should you pay on your mortgage when your neighbor doesn’t?” Karsbol said. http://tinyurl.com/mt4rts

Since Fannie and Freddie hold most of the mortgages in the U.S., the US government essentially is the 'landlord' for most of the residential dwellings.

We have become one big giant Company Town, where the leading employer owns most of the homes in town.

If Fannie and Freddie decided to 'rent' all the houses they held the garbage mortgage paper on, all that would be needed is a creative change in accounting law to allow them NOT to write off the mortgages as having defaulted because they are still performing assets, a 'rental mortgage' properties.

Gee, maybe they could bundle securitized 'rental' mortgages and sell them to pension funds and endowments.

In the current faux bull euphoria, they could find quite a few buyers to prop up the portfolios.

I just broke, I snapped, clean out of reality, into the world of conspiracy and prophecy.

I was actually about to enact a scene from the End Times, by accusing BB of being the devil incarnate, and sacrificing myself to him as a lamb, when he decieved me into becoming sane.

Then it ocurred to me that the name "Abaddon" from the Bible's revelationsis actually A Bad Don, as in Big Bernanke, it thus means place of my destruction.

I was about to deny the existence of time itself, to replace it with gods of gravity, but it seemed to be too malleable for my own tastes.

My belly is bitterly offended by the constant motion of the ocean.

However, it is perfectly reasonable, and not insane, to believe that Capital is subject to Gravity, and that an agenda to make bankers into pirates could exist.

From what I have observed, this exercise has been a complex behavioral experiment to see if an already meta-stable personality could be further destabilised and driven to active madness by administering cognitive and emotional stimuli specifically designed to work as a form of recursive carrot.

If not, then BB really is the devil, or the smith, and the matrix is about to be decompiled.

When the television adressed me and the carrots and gravy,I began to suspect something was not quite right.

The devil cannot exist, because he is a fictional character.Winston Smith is also a fictional character, but intimitely familliar, because I indentify myself with him.

I have focused on economic tales of doom while simultaneously misinterpreting selected scripture,which makes for a very unhealthy combination. This was somehow exasperated by systematic and perhaps unethical conduct on my part, and on the part of other parties,and a latent savior-complex inherent in my psychological profile, which, despite my sincerest efforts, I have been unable to eliminate from what is otherwise a harmony of mathematical perfection.

He said the bill, which would require refiners to hold or purchase permits for the amount of carbon dioxide their plants and fuels produce, would cost Valero some $6 billion to $7 billion per year.

That is more than the net income it made during 2006, its best year of net income for refining so far.

He said a carbon tax would be more transparent than a cap-and-trade market. Even adding an additional gasoline tax of 10 or 20 cents a gallon would be preferable to cap and trade in which the prices for emitting a ton of carbon could be hard to predict, he said.http://tinyurl.com/laxxqz

Democratic Republic of Congo warned on Tuesday. Researchers have discovered a high concentration of gas in the relatively shallow Gulf of Kabuno, in the lake's northwest corner. "The risk of explosion is imminent," Jose Endundo said. There is an estimated three cubic kilometres of carbon dioxide located 12 metres below the surface of the gulf, which sits on a tectonic fault. Scientists fear an earthquake or large lava flow from a nearby Nyiragongo or Nyamuragira volcanoes could create a release of gas, creating a deadly cloud. An eruption of some 1.2 million tonnes of CO2 that had been trapped under http://tinyurl.com/lb5cyp

I had an idea and I wanted some feedback on it. I finally started graduate school for economics and I was musing about Adam Smith's invisible hand, not the hand every already knows about, the other hand.

Adam Smith basically said that businesses and individuals pursuing their own economic interests unintentionally create a global good almost as if they were guided by an invisible hand. Paraphrasing, here is the exact quote. That's the right hand, the good hand, the white hand if it can be accepted that something can be white and invisible.

So here is my theory of the invisible black hand: Businesses and politicians pursuing their own political self interests unintentionally create a global bad* almost as if they were guided by an invisible hand.

* in my original theory I had used the word stupidity instead of the word bad. As I was thinking of a brilliant quote adaption by GreenEngineer at the time. The quote is "Any sufficiently advanced stupidity is indistinguishable from malice." which is a permutation of Arthur C. Clarke's "Any sufficiently advanced technology is indistinguishable from magic". The problem with the word stupidity is that there is not presently a robust theory of stupidity, which I freely admit sounds stupid. But it is an important distinction as most of the stupid decisions made in the world of politics are made by highly intelligent people. A good example is the trial of Galileo where Galileo's accurate understanding of the movement of celestial bodies was condemned as heresy by a literate and well versed, seasoned and vetted, intelligent and motivated group of qualifiers for logical inconsistency with the established order and conventional wisdom of the time. So, stupidity in the sense that I would like to use it can not be defined as the opposite of intelligence which leaves me without an operable definition of stupidity in spite of the fact that everyone knows what I mean when using the word. I think that this is a linguistic nuance where dumb, stupid, and ignorant are technically accurate antonyms of smart, intelligent or educated they fail to account for well reasoned decisions made on faulty assumptions, lacking a broader vision, or willfully obtuse of important considerations. Foolish and unwise are much more accurate terms except that they fail to capture the deliberation and emotional punch that is required. A foolish, unwise, or ignorant person typically didn't think a situation through because they lack the capacity that wold make them smart, intelligent, or wise. The word I believe that I am looking for means very intelligent and deliberately unwise, sadly I don't know what that word is.

For a business: Economic interests are those products, innovations or actions that result in a better, cheaper, or otherwise more competitive product whereas a business's political interest shall be defined as any legislative action, policy, or public perception that gives a business a competitive advantage without materially effecting their product line or operating model.

To give an example that TOD (I posted this on The Oil Drum earlier today) readers will be familiar with: It is in the biofuel producer's economic interest to produce a better (carbon neutral product, carbon negative product, higher EROEI product, more scalable product, or a product that doesn't compete for agricultural lands), cheaper, or more competitive product whereas the biofuel producer's political interests lay in changes to legislation, policy, and public perception such as quotas on ethanol imports from Brazil, subsidies to corn and soy production, blending mandates, and the public perception that biodiesel and ethanol are green alternatives even when they are produced with unsustainable, carbon positive, or negative EROEI methods.

For a politician the definitions are a bit simpler: Political self interest is anything that advances the politician's carrier even at the expense of their constituency whereas the politician's representative interests is anything that promotes the interests of their constituency even at the possible expense of their political carrier.

I don't think an example even needs to be given to explain this but here is the central one: Politicians represent a populous that is broadly in favor of campaign finance reform which the constituency believes would benefit the populous by giving them representatives that are more representative. However, the politicians in charge of enacting campaign finance reform realize that enacting the desired reform would deprive them of their corporate sponsors and hurt their chances of reelection. This results in a situation where the politician's political self interest is in direct conflict with the interests of their constituency.

BTW do you or anyone know who did the pushing on getting Canadian home mortgaes 100% insured by the taxpayer? My wife Madame D. wants to contemplate his, her , their name(s) while she knits.

-M. DeFarge

I don't have a name. The only ones "insured 100%" are the mortgages that were already insured because they had put less than 10% down payment.

What CMHC did was to take those mortgages off the banks's book by giving them money for new loans. (bought out those loans)Check out the following links http://americacanada.blogspot.com/ and http://www.cmhc-schl.gc.ca/en/corp/nero/index.cfm (It's not an easy site to extract info)

Ever since last fall, Ilargi has been indefatigable, a Tarahumara marathon man at the typewriter. Never mind missing a day, during the apex of the crisis Ilargi was producing two posts of high -quality analysis and observation each and every day.

Obviously, I welcome better economic days; but I must admit to already missing the daily posts that seem to have proportionally subsided with the crisis.

I have a similar drafty old farmhouse. My plan is to build an earth-bermed greenhouse as a "front" to a small winter underground shelter in case heating fuel gets too expensive too quickly. (Farmhouse is very old and was designed for freeze/thaw cycles so has no plaister)

Leona said: "Why.. why.. why would people build houses this tall out in the middle of the prairie? "

Greenpa said: "I said somewhere recently that I expect in 200 years our descendants (if any) will be highly amused at our houses- "build entirely above ground!? What were they thinking?!"

But it will take that long. Today, if you use "earth shelter" you are branded a hippie/fringe type."

The people who built your house the way they did might not be the idiots they seem to be. First, steep roofs tend to shed show and water better than flatter roofs. Second, they don't tend to blow off in high winds to the extent flatter roofs do. Tall pointed structures cause the winds to swirl around behind them. Lower flatter roofs tend to develop a partial vacuum above them, much like an airplane wing. This can cause the roof to blow off. Also shingles are more easily caught by the wind and damaged on a low roof.

As to South Florida's Stoneleigh prediction collection,I have contacted the_automatic_earth_fan who put the last ones for download on his site and waiting for a reply. Though I used to repair Mac computers, I have very little knowledge about web site construction. Just never got into it.